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As filed with the Securities and Exchange Commission on November 6, 1997
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
WORLD AIRWAYS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 94-1358276
(State or Other Jurisdiction of 13873 Park Center Road, Suite 490 (I.R.S. Employer
Incorporation or Organization) Herndon, Virginia 20171 Identification No.)
(703) 834-9200
(Address, including zip code, and telephone number, inclu-
ding area code, of Registrant's principal executive offices)
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_________________________
Russell L. Ray, Jr.
President
and Chief Executive Officer
World Airways, Inc.
Washington Dulles International Airport
13873 Park Center Road, Suite 490
Herndon, Virginia 20171
(703) 834-9200
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
David M. Carter
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219-4074
(804) 788-8200
_________________________
Approximate date of commencement of the proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment, please check the following
box.[ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective statement for the same
offering.[ ] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Class Proposed Maximum Offering
of Securities to Amount to be Price Proposed Maximum Amount of Registration
be Registered Registered Per Share Aggregate Offering Price Fee (1)
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8% Convertible Subordinated $50,000,000 100% $50,000,000 $15,152
Debentures Due 2004
Common Stock, $0.001 par
value (2) (3) -- -- (3)
==================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee,
pursuant to Rule 457(i) of Regulation C under the Securities Act of 1933.
(2) Represents shares issuable upon conversion of the Debentures.
(3) Such presently indeterminable number of shares of Common Stock as shall be
issuable from time to time upon conversion of the Debentures. Based upon a
conversion price of $8.90 per share, 5,617,978 shares of Common Stock are
issuable upon conversion of the Debentures, not including an indeterminable
number of shares of Common Stock that may become issuable upon conversion of the
Debentures in connection with a stock split, stock dividend, recapitalization or
similar event. No additional consideration will be received by the Registrant
for the shares of Common Stock issued upon conversion of the Debentures and
therefore, pursuant to Rule 457(i), no registration fee is required with respect
to the registration of Common Stock hereunder.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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$50,000,000
WORLD AIRWAYS, INC.
8% Convertible Senior Subordinated Debentures Due 2004
Interest Payable February 26 and August 26
------------------
This Prospectus relates to the public offer and sale of up to $50,000,000
aggregate principal amount of 8% Convertible Senior Subordinated Debentures Due
2004 (the "Debentures") and an indeterminate number of shares of World Airways,
Inc. ("World Airways" or the "Company") common stock $0.001 par value ("Common
Stock") that are issuable upon conversion of the Debentures (the "Shares" and,
together with the Debentures, are sometimes referred to as the "Securities").
The Securities may be offered from time to time for the account of the holders
thereof named herein (the "Selling Securityholders"). See "Selling
Securityholders" and "Plan of Distribution"). Information concerning the
Selling Securityholders may change from time to time which changes will be set
forth in an accompanying Prospectus Supplement.
The Debentures are convertible into the Shares at any time after October 25,
1997 and at or before maturity, unless previously redeemed, at a conversion
price of $8.90 per share, subject to adjustment on the occurrence of certain
events. The Common Stock of the Company is traded on The Nasdaq National Market
System ("Nasdaq") under the symbol "WLDA." On November 3, 1997, the last
reported sale price of the Common Stock on Nasdaq was $8.25 per share.
The Debentures do not provide for a sinking fund and are not redeemable by the
Company prior to August 26, 2000. Subject to the foregoing, the Debentures are
redeemable at the option of the Company, in whole or in part, at the redemption
prices set forth in this Prospectus, together with accrued interest. Upon a
Repurchase Event (as defined herein), each holder of Debentures shall have the
right, at the holder's option, to require the Company to repurchase such
holder's Debentures at a purchase price equal to 100% of the principal amount
thereof, plus accrued interest. See "Description of Debentures--Certain Rights
to Require Repurchase of Debentures."
The Debentures are unsecured senior subordinated obligations of the Company
and are subordinate to all present and future Senior Indebtedness (as defined
herein) of the Company. As of June 30, 1997, Senior Indebtedness was $40.8
million (including $6.7 million attributable to capital lease obligations). The
Indenture (as defined herein) will not restrict the incurrence of any other
indebtedness or liabilities by the Company or its subsidiaries, if any. See
"Description of Debentures--Subordination."
The Debentures were originally issued by the Company on August 26, 1997, in a
private placement (the "Private Placement"), with Furman Selz and Dillon, Read &
Co. Inc. as initial purchasers therein (the "Initial Purchasers"). See
"Prospectus Summary The Private Placement." As of the date of this Prospectus,
the aggregate principal amount of Debentures outstanding is $50,000,000 and no
Debentures have been converted into Shares. Prior to the date of this
Prospectus, there has been no public market for the Debentures. Although the
Debentures are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") Market of the National Association
of Securities Dealers, Inc., there can be no assurance that an active trading
market for the Debentures will develop.
The Company has been advised by the Selling Securityholders that the Selling
Securityholders, acting as principals for their own account, directly or through
agents, dealers or underwriters to be designated from time to time, may sell the
Debentures and the Shares from time to time on terms to be determined at the
time of the sale through customary brokerage channels or private sales at market
prices then prevailing or at negotiated prices then obtainable. To the extent
required, the aggregate principal amount of the specific Debentures or the
number of Shares to be sold, the names of the Selling Securityholders, the
purchase price, the public offering price, the name of
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any agent, dealer or underwriter, the amount of expenses of the offering and
any applicable commission or discount with respect to a particular offer will be
set forth in an accompanying Prospectus Supplement or, if appropriate, post-
effective amendment to the Registration Statement of which this Prospectus is a
part. Each of the Selling Securityholders reserves the right to accept and,
together with its agents from time to time, to reject in whole or in part any
proposed purchase of the Debentures or Shares to be made directly or through
agents. The aggregate proceeds to the Selling Securityholders from the sale of
the Debentures and the Shares offered by the Selling Securityholders hereby will
be the purchase price of such Debentures or Shares less any discounts or
commissions. For information concerning indemnification arrangements between
the Company and the Selling Securityholders, see "Plan of Distribution."
For a description of certain income tax consequences to holders of the
Debentures, see "Certain United States Federal Income Tax Consequences."
See "Risk Factors" beginning on page 11 of this Prospectus for a discussion of
certain factors that should be considered by prospective investors.
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------------------------
The date of this Prospectus is November ___ , 1997
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Financial Statements of
World Airways (including the Notes thereto) appearing elsewhere in this
Prospectus or incorporated by reference herein. Unless otherwise indicated, all
information contained herein assumes no exercise of the Initial Purchasers'
over-allotment option or of options granted pursuant to World Airways' stock
option plans. See "Plan of Distribution."
The Company
World Airways, Inc. ("World Airways" or the "Company") is a global provider
of long-range passenger and cargo air transportation outsourcing services to
major international airlines under fixed rate, multi-year contracts. The
Company's passenger and freight operations currently employ 12 wide-body
aircraft which are operated under contracts primarily with Pacific Rim airlines.
These contracts generally require the Company to supply aircraft, crew,
maintenance and insurance ("ACMI" or "wet lease"), while the Company's customers
are responsible for a large portion of the other operating expenses, including
fuel. World Airways' airline customers have determined that outsourcing a
portion of their wide-body passenger and cargo requirements can be less
expensive, and offers greater operational and financial flexibility, than
purchasing new aircraft and additional spare parts required for such aircraft.
World Airways also leads a contractor teaming arrangement that is one of the
largest suppliers of commercial airlift services to the United States Air Forces
Air Mobility Command ("USAF").
The Company, which was founded in 1948, has been providing ACMI contract
services since 1973. Management believes that, as a result of a July 1996
restructuring of its operations to concentrate on ACMI contract services, and
because it is a U.S. certificated "flag" carrier, the Company is well-
positioned to benefit from the growth in the global air passenger and air cargo
markets, particularly in the Pacific Rim region and South America, where the
Company has concentrated a significant amount of its resources.
World Airways restructured its business in July 1996 to focus on ACMI contract
services, taking a one-time charge of $21.0 million as of June 30, 1996. As a
result, the Company terminated all scheduled services on October 27, 1996.
World Airways' block hours flown from continuing operations increased
approximately 10% in the first six months of 1997 over the first six months of
1996 and increased approximately 23% in the year ended December 31, 1996 over
the year ended December 31, 1995. In addition, the Company had operating
revenues of approximately $160.7 million and $151.9 million for the first six
months of 1997 and 1996, respectively, and operating revenues of approximately
$309.6 million and $242.4 million for 1996 and 1995, respectively. Due to
accelerated maintenance on two MD-11s in June 1997, the Company's block hours
flown from continuing operations increased by 1% in the second quarter of 1997
as compared to the same period of the previous year. These aircraft are now
available for operation and are substantially booked for the latter part of
1997. See "Risk Factors -- Aircraft Fleet."
The Company operates a fleet of eight MD-11 and four DC10-30 wide-body
aircraft. The average age of the MD-11 fleet is 3.2 years. World Airways'
overall fleet age averages 8.1 years. When appropriate, the Company will add to
this fleet to accommodate the needs of new and existing customers. The Company
believes that aircraft are available at commercially reasonable rates for this
purpose.
Operating Philosophy
World Airways' operating philosophy is to build on its existing ACMI
relationships to achieve a strong platform for future growth.
. Focus on ACMI Contracts. World Airways concentrates on ACMI contracts
which shift yield, load factor and certain cost risks to the customer. The
customer bears the risk of filling the aircraft with passengers or
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cargo and assumes a large portion of the operating expenses, including
fuel. World Airways has elected to emphasize its ACMI business because the
Company perceives a number of opportunities created by a growing global
economy, particularly growth in second and third world economies where the
demand for airlift exceeds the capacity.
. Maximize Profitability by Combining Long-Term and Short-Term Contracts.
World Airways attempts to maximize profitability by combining its multi-
year ACMI contracts with short-term, higher-yielding ACMI agreements which
meet the peak seasonal requirements of its customers. The Company responds
opportunistically to rapidly changing market conditions by maintaining a
flexible fleet of aircraft that can be deployed in a variety of
configurations.
. Maintain Fleet Flexibility. While the Company's aircraft currently serve
predominantly passenger customers, World Airways substantially increases
its potential customer base by being able to serve both passenger and cargo
customers. The Company flies passenger, cargo and passenger/cargo
convertible aircraft that it believes permit it to react opportunistically
to changing demand. For example, the Company uses convertible aircraft in a
passenger configuration to meet peak seasonal flying for Malaysian Airlines
System Berhad ("Malaysian Airlines") and P.T. Garuda Indonesia ("Garuda")
during the spring of each year. The Company can subsequently use the same
convertible aircraft in a cargo configuration for a customer, such as UPS,
later in the same year.
. Concentrate on Growing Regions. World Airways focuses its marketing
efforts on the Pacific Rim, Europe, and more recently, South America, where
rapid economic development drives demand for the Company's services. The
Company believes that its modern fleet of long-range medium-density wide-
body MD-11 and DC10-30 aircraft are ideally suited to these less dense
international routes and provide superior economics as compared to other
popular aircraft, such as the Boeing 747 which has excess capacity. World
Airways has operated in the Pacific Rim almost since its inception in 1948,
more recently has penetrated the South American market, and believes that
it has developed the ability to serve these markets well.
. Maintain Relationships with Long-Term Customers. World Airways has been
providing safe, reliable services for almost 50 years. The Company has
flown for the USAF since 1956, for Malaysian Airlines since 1981 and for
Garuda since 1973.
Growth Strategy
World Airways' strategy for increasing its revenues and profits focuses on its
growing core business of providing ACMI contract services to international
airlines by:
. Expanding Core Carrier Relationships. Over the years, the Company has
developed long-term relationships with a number of major international
airlines and with the USAF. The Company's growth strategy is based upon
providing high quality service to these customers, thereby maintaining and
expanding the amount of business obtained through long-term contracts.
. Marketing ACMI Services, Particularly in the Pacific Rim and South America.
The Company's new management team is committed to increasing the Company's
marketing efforts, including adding marketing personnel, and has undertaken
a targeted marketing effort worldwide, particularly in the Pacific Rim and
South America. It has recently entered into a Memorandum of Agreement with
Viacao Aereo Sao Paulo ("VASP"), a Brazilian airline. See "Business --
Significant Customer Relationships."
. Entering into New Strategic Alliances. The Company is seeking to enter new
strategic alliances to further the growth of its ACMI business. The Company
believes that in the future there will likely be opportunities for
consolidation within the ACMI business through acquisitions and alliances.
The Company has no present agreements or understandings to acquire or merge
with any other businesses.
World Airways principal executive offices are located at 13873 Park Center
Road, Suite 490, Herndon, Virginia 20171, and its telephone number is (703) 834-
9200.
4
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The Private Placement
In August 1997, the Company completed a private placement (the "Private
Placement") of $50,000,000 in aggregate principal amount of the Debentures
pursuant to a Purchase Agreement, dated as of August 21, 1997 (the "Purchase
Agreement"), among the Company and the Initial Purchasers. The Debentures were
sold to qualified institutional buyers pursuant to Rule 144A of the Securities
Act of 1933 (the "Securities Act"), certain "accredited investors" pursuant to
Regulation D under the Securities Act, and certain non-U.S. persons pursuant to
Regulation S under the Securities Act.
The net proceeds to the Company from the Private Placement were approximately
$47.5 million, after deducting the discount to the Initial Purchasers and
expenses. The Company intends to use a portion of the net proceeds from the
Private Placement to repurchase approximately 4.0 million shares of Common
Stock. The Company and WorldCorp, Inc. ("WorldCorp") entered into an
agreement (the "Agreement") for the purchase by World Airways of up to 4.0
million shares of Common Stock owned by WorldCorp at a purchase price per share
of $7.65. The Company has received an opinion from Furman Selz LLC that the
terms of the Agreement are fair to the stockholders of the Company from a
financial point of view. Closing under the Agreement was subject to certain
contractual and regulatory contingencies, including the approval of the Boards
of Directors of the Company and WorldCorp. In September 1997, the Boards of
Directors of the Company and WorldCorp approved the Agreement. On September 18,
1997, the Company purchased 3,227,000 shares of Common Stock from WorldCorp for
approximately $24.7 million in cash in accordance with the terms of the
Agreement.
Discussions with MHS Berhad ("MHS") following the Private Placement could have
an impact on the number of shares of Common Stock ultimately repurchased from
WorldCorp. MHS has certain rights under a shareholders agreement, dated as of
February 3, 1994, as amended, among WorldCorp, MHS and the Company (the
"Shareholders Agreement"), the provisions of which are described in "Certain
Relationships and Transactions." This agreement includes a provision that
provides that if WorldCorp were to dispose of its holdings in the Company with
the result that WorldCorp's ownership interest in the Company falls below 51% of
the outstanding shares of Common Stock, then MHS may either sell its shares to a
third party or require WorldCorp to sell a pro rata number of shares held by MHS
to the party purchasing WorldCorp's shares. As a result of the repurchase of
3,227,000 shares of Common Stock by World Airways from WorldCorp, MHS has the
right to sell 773,000 shares of Common Stock. Failure by the Company to effect
the repurchase of at least 4.0 million shares of Common Stock within 150 days
after the original issue of the Debentures is a Repurchase Event. See
"Description of Debentures--Certain Rights to Require Repurchase of Debentures."
Prior to completion of the Private Placement, WorldCorp, MHS and the Company
engaged in preliminary discussions as to a potential repurchase of Common Stock
owned by MHS. The MHS-nominated representatives to the Company's Board of
Directors notified the Company's other Directors that they were not in favor of
using proceeds from the Private Placement to repurchase Common Stock from both
WorldCorp and MHS. The Company anticipates that these discussions will
continue, although there can be no assurance that these discussions will result
in any stock repurchases from MHS. Should MHS not exercise its right to sell
the 773,000 shares of Common Stock, the Company currently intends to repurchase
the 773,000 shares from WorldCorp.
The Company applied approximately $3.8 million of the net proceeds of the
Private Placement to repay borrowings outstanding under the Company's bank
credit agreement (the "Credit Agreement"). Remaining net proceeds of the
Private Placement will be used for working capital and general corporate
purposes, capital expenditures, such as leasing of additional aircraft and the
purchase of engines and spare parts, and the repayment of other indebtedness.
Pending such uses, the Company may invest proceeds of the Private Placement in
income producing investments, including, but not limited to, investments in
commercial paper, government securities or money market funds that invest in
government securities.
Pursuant to a Registration Rights Agreement, dated as of August 26, 1997 (the
"Registration Rights Agreement"), among the Company and the Initial Purchasers,
the Company has agreed to file a shelf registration statement under the
Securities Act (together with all exhibits, schedules and amendments thereto,
the "Registration
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Statement"), of which this Prospectus forms a part, relating to resales of the
Debentures and the Shares. The Company is required under the Registration Rights
Agreement to maintain the effectiveness of the Registration Statement for a
period of two years from the completion of the Private Placement or, if shorter,
when (i) all the Securities have been sold pursuant to the Registration
Statement or (ii) the date on which there ceases to be outstanding any
Securities. See "Description of Debentures--Registration Rights; Liquidated
Damages."
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995:
World Airways desires to take advantage of the new "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. World Airways wishes to
caution readers that this Prospectus contains forward looking statements that
are subject to risks and uncertainties, including, but not limited to, the
impact of significant financial leverage, competition, demand and market
acceptance risks, reliance on key strategic alliances, fluctuations in operating
results and other risks detailed from time to time in World Airways' filings
with the Securities and Exchange Commission and set forth herein, including risk
factors disclosed in World Airways' Form 10-K for the fiscal year ended December
31, 1996 and those discussed in "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." See "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations." These risks could cause World Airways' actual results for 1997 and
beyond to differ materially from those expressed in any forward looking
statements made by, or on behalf of, World Airways.
6
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The Offering
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Securities Offered................. $50,000,000 principal amount of 8% Convertible Senior Subordinated Debentures due
2004 and shares of Common Stock of the Company issuable upon conversion thereof,
subject to adjustment under certain circumstances.
Payment of Interest................ February 26 and August 26, commencing February 26, 1998.
Conversion......................... Convertible into Common Stock of the Company at the option of the holder at any
time after October 25, 1997 and at or before maturity, unless previously
redeemed, at $8.90 per share, subject to adjustment upon the occurrence of
certain events. See "Description of Debentures--Conversion Rights."
Subordination...................... Subordinated to all present and future Senior Indebtedness (as defined) of the
Company. The Debentures will be senior subordinated indebtedness of the Company
ranking pari passu with all future senior subordinated indebtedness of the
Company and senior to all existing and future Subordinated Indebtedness (as
defined) of the Company. As of June 30, 1997, Senior Indebtedness of the Company
was $40.8 million, no indebtedness of the Company was outstanding which would
have ranked pari passu in right of payment with the Debentures, no Subordinated
Indebtedness was outstanding and the Company had no firm arrangements to issue
any significant Subordinated Indebtedness as of such date. The Indenture
contains no limitation on the incurrence of indebtedness (including Senior
Indebtedness) or other liabilities by the Company. See "Description of
Debentures--Subordination."
Redemption......................... The Debentures are not redeemable by the Company prior to August 26, 2000.
Subject to the foregoing, the Debentures are redeemable in whole or in part, at
the option of the Company, at the redemption prices set forth herein, together
with accrued interest. See "Description of Debentures--Optional Redemption."
Redemption at Holder's Option...... In the event that there shall occur a Repurchase Event (as defined herein), each
holder of the Debentures shall have the right, at the holder's option, to require
the Company to repurchase such holder's Debentures at 100% of their principal
amount, plus accrued interest. The Company's ability to repurchase the
Debentures following a Repurchase Event is dependent upon the Company having
sufficient funds and may be limited by the terms of the Company's Senior
Indebtedness or the subordination provisions of the Indenture. There is no
assurance that the Company will be able to repurchase the Debentures upon the
occurrence of a Repurchase Event. See "Description of Debentures--Certain Rights
to Require Repurchase of Debentures."
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Registration Rights................ The Debentures and the Shares are currently subject to certain restrictions on
transfer. However, pursuant to a registration rights agreement between the
Company and the Initial Purchasers (the "Registration Rights Agreement"), the
Company has agreed to file a shelf registration statement under the Securities
Act with the Securities and Exchange Commission (the "Commission") relating to
resales of the Debentures and the Shares. The Registration Statement of which
this Prospectus is a part is being filed pursuant to such agreement. The Company
will not receive any of the proceeds from the sales of the Debentures or the
Shares by the Selling Security Holders pursuant to this Prospectus. The Selling
Security Holders will receive all the net proceeds from any sale of the
Debentures or Shares offered hereby. See "Description of
Debentures--Registration Rights; Liquidated Damages."
Form and Denomination.............. The Debentures initially sold by the Initial Purchasers to qualified
institutional buyers are represented by a Rule 144A Global Security in fully
registered form deposited with a custodian for and registered in the name of a
nominee of The Depository Trust Company ("DTC"). Beneficial interests in the
Rule 144A Global Security will be shown on, and transfers thereof will be
effected through, records maintained by DTC and its Participants (as defined
herein). Debentures initially sold by the Initial Purchasers within the United
States to accredited investors who are not qualified institutional buyers are in
certificated form, and cannot be traded through the facilities of DTC except in
connection with a transfer to a qualified institutional buyer or a transfer
pursuant to Regulation S. The Debentures initially sold by the Initial
Purchasers to non-U.S. persons pursuant to Regulation S under the Securities Act
are represented by a Regulation S Temporary Global Security. Beneficial
interests in the Regulation S Temporary Global Security may be held only through
Euroclear and Cedel Bank. The Regulation S Permanent Global Security is expected
to be deposited with the Trustee as custodian for DTC, and beneficial interests
therein may be held through Euroclear, Cedel Bank or any other Participant.
Absence of Public Market For the Prior to the date of this Prospectus, there has been no public market for the
Notes............................. Debentures and there can be no assurance regarding the future development of a
market for the Debentures. The Debentures are eligible for trading on the PORTAL
Market; however, no assurance can be given as to the liquidity of, or trading
market for, the Debentures. The Company has been advised by the Initial
Purchasers that they intend to make a market in the Debentures. However, the
Initial Purchasers are not obligated to do so and any market-making activities
with respect to the Debentures may be discontinued at any time without notice.
Accordingly, no assurance can be given as to the liquidity of or the trading
market for the Debentures. The Common Stock is traded on Nasdaq under the symbol
"WLDA." See "Plan of Distribution."
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Risk Factors
For a discussion of certain factors that should be considered by prospective
investors, see "Risk Factors."
8
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Summary Financial and Operating Data
(Dollars in thousands, except operating and per share data)
The following table sets forth selected income statement data, operating data
and balance sheet data for the Company for the periods indicated. The historical
financial information for, and as of the end of, each of the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 is derived from the audited
financial statements of the Company for such years. This information should be
read in conjunction with, and is qualified by reference to, the financial
statements of the Company and the notes thereto included in the Prospectus. The
following selected financial data for the six months ended June 30, 1996 and
1997 is derived from the Company's unaudited financial statements. In the
opinion of management of the Company, such unaudited financial statements
include all adjustments necessary for a fair presentation of the results of
operations for such periods. Operating results for the six months ended June 30,
1997, are not necessarily indicative of results that may be expected for the
entire year ending December 31, 1997. The data appearing under the caption
"Operating Data" is derived from the records of the Company. The unaudited as
adjusted income statement data for the year ended December 31, 1996 and the six
months ended June 30, 1997 give effect to the Private Placement, the repayment
of borrowings under the Credit Agreement, and the purchase of 3,227,000 shares
of Common Stock from WorldCorp as if they were completed on January 1, 1996
and the unaudited as adjusted balance sheet data give effect to these
transactions as if they were completed on June 30, 1997.
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Years Ended December 31,
------------------------------------------------------------------
1992 1993 1994 1995(1) 1996(1)
------------ ----------- ----------- ------------ ------------
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Income Statement Data:
Operating revenues..................................... $180,293 $ 178,736 $ 180,715 $242,386 $309,587
Operating expenses..................................... 173,028 186,065(2) 185,916(3) 226,488 287,942
-------- ---------- ---------- -------- --------
Operating income (loss)................................ 7,265(5) (7,329) (5,201) 15,898 21,645
Other income (expense)................................. 1,389 (1,656) (3,826) (1,150) (2,613)
Earnings (loss) from continuing operations before
income taxes and change in accounting principle....... 8,654 (8,985) (9,027) 14,748 19,032
Income tax expense (benefit)........................... 236 64 (26) 602 679
Earnings (loss) from continuing operations before
change in accounting principle........................ 8,418 (9,048) (9,001) 14,146 18,353
Net earnings (loss).................................... 6,445(6) (9,048) (9,001) 8,896 (14,022)
Earnings (loss) per common share from continuing
operations............................................ $ 0.94 $ (1.01) $ (0.91) $ 1.34 $ 1.55
Net earnings (loss) per common share................... $ 0.72 $ (1.01) $ (0.91) $ 0.84 $ (1.19)
Cash dividends per common share........................ $ 2.16 $ -- $ -- $ -- $ --
Ratio of earnings to fixed charges(7).................. 1.65x -- -- 1.58x 1.60x
Deficiency in earnings to cover fixed charges(7)....... -- $ 8,984 $ 9,027 -- --
EBITDA(8).............................................. $ 12,186 $ (1,756) $ (1,195) $ 21,954 $ 29,677
Operating Data:
Block hours flown(9):
from continuing operations............................ 22,263 23,462 26,455 35,628 43,897
from discontinued operations(1)....................... -- -- -- 1,714 6,628
-------- ---------- ---------- -------- --------
Total............................................... 22,263 23,462 26,455 37,342 50,525
======== ========== ========== ======== ========
Average aircraft equivalents(10):...................... 7.2 8.8 8.2 10.3 14.1
Daily aircraft utilization (in block hours)(11):....... 8.4 7.3 8.8 9.9 9.8
Operating income (loss) per continuing block
hour(12).............................................. $ 326 $ (312) $ (197) $ 446 $ 493
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1996(1) 1997
------------ -----------
<S> <C> <C>
Income Statement Data:
Operating revenues..................................... $151,873 $ 160,676
Operating expenses..................................... 139,927 147,842(4)
-------- ----------
Operating income (loss)................................ 11,946 12,834
Other income (expense)................................. (859) (1,818)
Earnings (loss) from continuing operations before
income taxes and change in accounting principle....... 11,087 11,016
Income tax expense (benefit)........................... 315 350
Earnings (loss) from continuing operations before
change in accounting principle........................ 10,772 10,666
Net earnings (loss).................................... (21,933) 10,666
Earnings (loss) per common share from continuing
operations............................................ $ 0.90 $ 0.95
Net earnings (loss) per common share................... $ (1.83) $ 0.95
Cash dividends per common share........................ $ -- $ --
Ratio of earnings to fixed charges(7).................. 1.79x 1.58x
Deficiency in earnings to cover fixed charges(7)....... -- --
EBITDA(8).............................................. $ 15,840 $ 17,165
Operating Data:
Block hours flown(9):
from continuing operations............................ 22,007 24,150
from discontinued operations(1)....................... 2,534 --
-------- ----------
Total............................................... 24,541 24,150
======== ==========
Average aircraft equivalents(10):...................... 13.3 13.7
Daily aircraft utilization (in block hours)(11):....... 10.2 9.8
Operating income (loss) per continuing block
hour(12).............................................. $ 543 $ 531
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1997
---------------------
As
Actual Adjusted(13)
--------- ------------
<S> <C> <C>
As Adjusted Balance Sheet Data:
Cash and restricted short-term investments............................................................$ 9,471 $ 29,272
Working capital (deficit)............................................................................. (31,852) (10,851)
Net equipment and property............................................................................ 73,147 73,147
Total assets.......................................................................................... 127,669 149,020
Notes payable and long-term obligations (including current maturities)................................ 40,764 86,802
Accumulated deficit................................................................................... (18,340) (18,340)
Total stockholders' equity (deficit).................................................................. 18,896 (5,791)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
For the year ended For the six months ended
December 31, 1996 June 30, 1997
--------------------------- -----------------------------
Actual As Adjusted(13) Actual As Adjusted(13)
---------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
As Adjusted Income Statement Data:
Operating revenues......................................................... $309,587 $309,587 $ 160,676 $160,676
Operating expenses......................................................... 287,942 287,942 147,842(4) $147,842
-------- -------- ---------- --------
Operating income........................................................... 21,645 21,645 12,834 12,834
Other income (expense)..................................................... (2,613) (6,059) (1,818) $ (3,628)
-------- -------- ---------- --------
Earnings from continuing operations before income taxes.................... 19,032 15,586 11,016 9,206
Income tax expense......................................................... (679) (607) (350) (312)
-------- -------- ---------- --------
Earnings from continuing operations........................................ 18,353 14,979 10,666 8,894
Discontinued operations.................................................... (32,375) (32,447) -- --
-------- -------- ---------- --------
Net earnings (loss)........................................................ $(14,022) $(17,468) $ 10,666 $ 8,894
======== ======== ========== ========
Primary earnings (loss) per common share:
Continuing operations..................................................... $ 1.55 $ 1.74 $ 0.95 $ 1.11
Discontinued operations................................................... $ (2.74) $ (3.76) $ -- $ --
-------- -------- ---------- --------
Net earnings (loss)....................................................... $ (1.19) $ (2.02) $ 0.95 $ 1.11
======== ======== ========== ========
Weighted average shares outstanding (in thousands)........................ 11,806 8,628 11,234 8,007
Fully diluted earnings (loss) per common share:
Continuing operations..................................................... $ 1.55 $ * $ 0.95 $ 0.80
Discontinued operations................................................... $ (2.74) $ * $ -- $ --
-------- -------- ---------- --------
Net earnings (loss)....................................................... $ (1.19) $ * $ 0.95 $ 0.80
======== ======== ========== ========
Weighted average shares outstanding (in thousands)........................ 11,806 * 11,236 13,627
Ratio of earnings to fixed charges(7)...................................... 1.60x 1.45x 1.58x 1.45x
EBITDA(8).................................................................. $ 29,677 $ 29,677 $ 17,165 $ 17,165
</TABLE>
- --------------
* Fully diluted earnings per share are anti-dilutive.
(1) Operating revenues and expenses for 1995 and 1996 exclude discontinued
operations, consisting of the Company's scheduled passenger and charter
operations.
(2) Operating expenses in 1993 include $2.3 million of termination fees related
to the early return of three DC10-30 aircraft.
(3) Operating expenses in 1994 include a $4.2 million reversal of excess
accrued maintenance reserves associated with the expiration of three DC10-
30 aircraft leases during 1994.
(4) Operating expenses for the six months ended June 30, 1997, include a $1.0
million reversal of accrued maintenance expense in excess of the cost of an
overhaul of a DC-10 aircraft.
(5) Operating income in 1992 includes $4.1 million related to settlement of
contract claims with the U.S. Government related to Operation Desert
Shield/Desert Storm.
(6) Cumulative effect of change in accounting principle from the adoption of
FAS #106, Employers Accounting For Post-Retirement Benefits Other Than
Pensions.
(7) For purposes of computing this ratio, earnings consist of earnings (loss)
from continuing operations before income taxes and change in accounting
principle and fixed charges. Fixed charges consist of interest expense,
including amortization of debt issuance costs and one-third of rent expense
which is deemed to be representative of interest expense.
(8) EBITDA represents operating income (loss) excluding depreciation and
amortization. The Company has included EBITDA to provide additional
information related to the Company's ability to service debt. EBITDA should
not be considered as an alternative measure of the Company's net income or
cash flow (which are determined in accordance with generally accepted
accounting principles), operating performance or liquidity.
(9) "Block hours flown" for an aircraft represents the elapsed time computed
from the moment the aircraft first moves under its own power at the point
of origin to the time it comes to rest at its destination.
(10) "Average aircraft equivalents" represents the total number of aircraft in
service during each day of a given period divided by the number of days in
the given period.
(11) "Daily aircraft utilization" is determined by dividing the block hours
flown during such period by the number of days during such period that the
aircraft were leased by the Company.
(12) "Operating income (loss) per continuing block hour" for any period
represents the amount determined by dividing operating income (loss) for
such period by the total block hours flown for such period.
(13) Adjusted to give effect to the sale by the Company of the Debentures in
the Private Placement, the repayment of borrowings under the Credit
Agreement, as described in "Prospectus Summary--The Private Placement," and
the purchase of 3,227,000 shares of Common Stock from WorldCorp. The as
adjusted amounts do not assume any interest earnings on the net proceeds
from the Private Placement. In the event that the Company repurchases
additional shares of Common Stock, as described in "Prospectus Summary--The
Private Placement," total stockholders' equity would be reduced by the
amount of the purchase price for such Common Stock. See "Capitalization."
10
<PAGE>
RISK FACTORS
In evaluating an investment in the Debentures or the Shares, prospective
investors should consider carefully the following risk factors, in addition to
the other information in this Prospectus and in the documents incorporated by
reference herein.
Risks Related to World Airways and the Debentures:
Significant Financial Leverage
World Airways is highly leveraged and will be substantially more leveraged
upon completion of the Private Placement. World Airways incurred substantial
debt and lease commitments during the past three years in connection with its
acquisition of MD-11 aircraft and related spare parts. In addition, World
Airways has significant future long-term obligations under aircraft lease
obligations relating to its aircraft.
As of June 30, 1997, the Company had outstanding $29.1 million in long-term
debt and capital leases, with expected debt service and capital lease expense of
$5.9 million for the six months ending December 31, 1997 and $13.3 million for
the year ending December 31, 1998. As of June 30, 1997, after giving effect to
the Private Placement and use of proceeds therefrom, the Company's total
indebtedness would have been approximately $86.8 million, $36.8 million of which
would have been Senior Indebtedness, including $6.7 million attributable to
capital lease obligations, no indebtedness of the Company would have ranked pari
passu with the Debentures, and no indebtedness would have been Subordinated
Indebtedness. On September 18, 1997, the Company purchased 3,227,000 shares of
its Common Stock from WorldCorp for approximately $24.7 million in cash. In the
event that the Company repurchases additional shares of Common Stock, as
described in "Prospectus Summary--The Private Placement," total stockholders'
equity would be reduced by the amount of purchase price for such Common Stock.
See "Capitalization." The Indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, which World Airways can create,
incur, assume or guarantee. See "Description of Debentures--Subordination."
The Company currently has incurred, and after the consummation of the Private
Placement will continue to incur, significant annual cash fixed charge expenses.
After giving effect to the Private Placement, the as adjusted ratio of earnings
to fixed charges for the fiscal year ended December 31, 1996 would have been
1.45 to 1 compared to 1.60 to 1 before the Private Placement. See "Prospectus
Summary--The Private Placement" and "Capitalization."
The Company's ability to make interest payments on the Debentures will be
dependent on the Company's future operating performance, which is itself
dependent on a number of factors, many of which are beyond the Company's
control. The Company's ability to repay the Debentures at maturity will depend
upon these same factors and the ability of the Company to raise additional
funds. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
The degree to which World Airways is leveraged could have important
consequences to holders of the Debentures and, upon conversion, holders of the
Shares, including the following: (i) World Airways' ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or other purposes may be limited; (ii) a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of principal and
interest on its indebtedness; (iii) World Airways' degree of leverage and
related debt service obligations, as well as its obligations under operating
leases for aircraft, may make it more vulnerable than some of its competitors in
a prolonged economic downturn; (iv) World Airways' ability to meet its payment
obligations under existing and future indebtedness, capital leases and operating
leases may be limited; and (v) World Airways' financial position may restrict
its ability to pursue new business opportunities and limit its flexibility in
responding to changing business conditions.
11
<PAGE>
Liquidity and Capital Resources
World Airways' cash and cash equivalents at June 30, 1997 and December 31,
1996 were $8.3 million and $7.0 million, respectively. As is common in the
airline industry, World Airways operates with a working capital deficit. At
June 30, 1997, World Airways' current assets were $33.5 million and current
liabilities were $65.3 million. World Airways has substantial long-term
aircraft lease obligations with respect to its current aircraft fleet. Although
there can be no assurances, World Airways believes that its existing contracts
and additional business which it expects to obtain in the near term, along with
its existing cash and financing arrangements and the net proceeds from the
Private Placement will be sufficient to allow World Airways to meet its cash
requirements related to debt service and the operating and capital requirements
for its continuing operations for the next 12 months.
In 1996, World Airways instituted a program to purchase up to one million
shares of its publicly-traded Common Stock pursuant to open market transactions.
As of June 30, 1997, World Airways had purchased 770,000 shares of Common Stock
at an aggregate cost of approximately $7.8 million pursuant to such program.
WorldCorp and World Airways have entered into an agreement for the repurchase of
Common Stock owned by WorldCorp. Failure by the Company to effect the
repurchase of at least 4.0 million shares of Common Stock within 150 days after
the original issue of the Debentures is a Repurchase Event. On September 18,
1997, the Company purchased 3,227,000 shares of Common Stock from WorldCorp at a
purchase price of $7.65 per share. See "Prospectus Summary--The Private
Placement" and "Description of Debentures--Certain Rights to Require Repurchase
of Debentures."
In the event that World Airways enters into leases for additional aircraft,
World Airways will need to make capital expenditures for additional spare
engines and parts. No assurances can be given, however, that World Airways will
obtain all of the financing required for such capital expenditures.
Dependence Upon Key Customers
World Airways' business relies heavily on its contracts with Malaysian
Airlines, Philippine Airlines, Inc. ("Philippine Airlines"), Garuda and the
USAF. For the first six months of 1997, these customers provided 27%, 36%, 19%
and 15%, respectively, of World Airways' revenues and 30%, 38%, 20% and 8%,
respectively, of total block hours. In 1996, these customers accounted for 34%,
15%, 13% and 25%, respectively, of World Airways' revenues and 42%, 17%, 14%,
and 17%, respectively, of total block hours flown from continuing operations.
As a result of teaming arrangements, World Airways has been awarded one of the
largest USAF fixed awards under the Civil Reserve Air Fleet ("CRAF") program for
the U.S. Government's 1997-98 fiscal year. World Airways, however, cannot
determine how the reduction in overall Defense Department spending may affect
arrangements with the USAF in future years. The loss of any of these contracts
with these key customers, a renegotiation of the terms of these contracts or a
substantial reduction in business from any of them, if not replaced, could have
a material adverse effect on the financial condition or results of operations of
World Airways. Although World Airways' customers bear the financial risk of
filling the World Airways' aircraft with passengers or cargo, World Airways can
be affected adversely if its customers are unable to operate its aircraft
profitably, or if one or more of World Airways' customers experience a material
adverse change in their market demand, financial condition or results of
operations. Under these circumstances, World Airways can be adversely affected
by receiving delayed or partial payments or by receiving customer demands for
rate and utilization reductions, flight cancellations, and/or early termination
of their agreements.
As of June 30, 1997, World Airways operated four MD-11 passenger aircraft for
Philippine Airlines under an agreement with high minimum monthly utilization
levels. Philippine Airlines, however, is experiencing financial difficulties,
and since March 1997 had been making monthly lease payments to the Company on an
installment basis according to a payment plan agreed to by the Company and
Philippine Airlines at the beginning of each month. On July 11, 1997, World
Airways agreed to shift two MD-11s currently operating for Philippine Airlines
to other customers of the Company. See "Business--Significant Customer
Relationships." As of the date hereof, Philippine Airlines is in compliance with
its agreements with the Company and has reconfirmed its commitment to operate
the remaining two MD-11s currently in its fleet until February 1998. Failure by
Philippine Airlines to meet its aircraft lease obligations, if not offset by
other business, would have a material adverse effect on the financial condition,
cash flows and results of operations of the Company.
12
<PAGE>
On July 3, 1997, World Airways entered a binding Memorandum of Agreement with
VASP for the lease of two MD-11 passenger aircraft for a six-month term with a
six-month renewal option. The Company is currently negotiating the terms of
this lease with VASP, with commencement anticipated for no earlier than late
1997. The Company is also leasing a cargo plane to VASP under an ACMI contract
which began in June 1997. See "Business--Significant Customer Relationships."
The loss of this agreement, a renegotiation of its terms or a substantial
reduction of business for VASP, if not replaced, could have a material adverse
effect on the financial condition or results of operations of World Airways.
Geographic Concentration
World Airways derives a significant percentage of its revenues and block hours
from its operations in the Pacific Rim region. While World Airways believes the
Pacific Rim region is a growth market for air transportation, any economic
decline or any military or political disturbance in this area may interfere with
World Airways' ability to provide service and could have a material adverse
effect on the financial condition or results of operations of World Airways.
Operating Losses
While World Airways generated operating income each year from 1987 through
1992 and in 1995, it sustained operating losses in 1993 and 1994 of $7.3 million
and $5.2 million, respectively, and net losses of $9.0 million in each of these
two years. For the year ended December 31, 1996, World Airways incurred a net
loss of $14.0 million, which resulted from operating losses incurred in World
Airways' scheduled service operations, which were discontinued in 1996, and the
related estimated loss on disposal. Earnings from continuing operations were
$18.4 million for 1996. While World Airways generated operating income for the
six months ended June 30, 1997 of $12.8 million, there can be no assurance that
World Airways will be able to generate operating income for the remainder of
1997 or future years.
Debentures Represent Unsecured, Subordinated Claims; No Limitation on
Additional Indebtedness
The Debentures are subordinate in right of payment to all current and future
Senior Indebtedness of World Airways and rank pari passu with all future senior
subordinated indebtedness of the Company and rank senior in right of payment to
all existing and future Subordinated Indebtedness of the Company. Senior
Indebtedness includes, among other things, all secured indebtedness and capital
lease obligations of World Airways, whether existing on or created or incurred
after the date of the issuance of the Debentures, and all indebtedness for money
borrowed that is not made subordinate to or pari passu with the Debentures by
the instrument creating the indebtedness. At June 30, 1997, the aggregate
amount of Senior Indebtedness outstanding was approximately $40.8 million
(including $6.7 million attributable to capital lease obligations), no
indebtedness of the Company was outstanding that would have ranked pari passu
with the Debentures, and no Subordinated Indebtedness was outstanding. As of
June 30, 1997, after giving effect to the repayment of approximately $4.0
million of indebtedness with proceeds from the Private Placement, World Airways
will have approximately $86.8 million of indebtedness outstanding, of which
$36.8 million would constitute Senior Indebtedness, no indebtedness of the
Company would rank pari passu with the Debentures, and no indebtedness would
constitute Subordinated Indebtedness. In the event the Company has subsidiaries
that incur debt, the Debentures would be effectively subordinated to such debt.
The Indenture does not limit the amount of additional indebtedness, including
Senior Indebtedness, which World Airways can create, incur, assume or guarantee.
By reason of such subordination of the Debentures, in the event of insolvency,
bankruptcy, liquidation, reorganization, dissolution or winding up of the
business of World Airways or upon a default in payment with respect to any
Senior Indebtedness of World Airways or an event of default with respect to such
indebtedness resulting in the acceleration thereof, the assets of World Airways
will be available to pay the amounts due on the Debentures only after all Senior
Indebtedness of World Airways has been paid in full. See "Description of
Debentures."
13
<PAGE>
Limitations on Repurchase of Debentures Upon a Repurchase Event
In the event of a Repurchase Event, each holder of the Debentures will have
the right, at the holder's option, to require World Airways to repurchase all or
a portion of such holder's Debentures at a purchase price equal to 100% of the
principal amount thereof plus accrued interest to the repurchase date. World
Airways' ability to repurchase the Debentures upon a Repurchase Event may be
limited by the terms of World Airways' Senior Indebtedness and the subordination
provisions of the Indenture. The right to require the Company to repurchase
Debentures as a result of the occurrence of a Repurchase Event could create an
event of default under Senior Indebtedness of the Company, as a result of which
any repurchase could, absent a waiver, be blocked by the subordination
provisions of the Debentures. See "Description of Debentures--Subordination."
Failure by the Company to repurchase the Debentures when required will result in
an Event of Default with respect to the Debentures whether or not such
repurchase is permitted by the subordination provisions. The Company's ability
to pay cash to the holders of Debentures upon a repurchase may be limited by
financial covenants contained in the Company's Senior Indebtedness. Further,
the ability of World Airways to repurchase Debentures upon a Repurchase Event
will be dependent on the Company's ability to raise sufficient funds through
additional borrowings or equity sales and compliance with applicable securities
laws. Accordingly, there can be no assurance that World Airways will be able to
repurchase the Debentures upon a Repurchase Event. The term "Repurchase Event"
is limited to certain specified transactions and may not include other events
that might adversely affect the financial condition of World Airways, nor would
the requirement that World Airways offer to repurchase the Debentures upon a
Repurchase Event necessarily afford holders of the Debentures protection in the
event of a highly leveraged reorganization, merger or similar transaction
involving World Airways. See "Description of Debentures."
Utilization of Aircraft
Due to the large capital costs of leasing and maintaining World Airways'
aircraft, each of World Airways' aircraft must have high utilization at
attractive rates in order for World Airways to operate profitably. Although
World Airways' strategy is to enter into long-term contracts with its customers,
the terms of World Airways' existing customer contracts are substantially
shorter than the terms of World Airways' lease obligations with respect to the
aircraft. Approximately 70% and 13% of World Airways' contract backlog at June
30, 1997, relates to its multi-year contracts with Malaysian Airlines and
Philippine Airlines, respectively. In addition, a significant portion of World
Airways' current contracts expire near the end of 1997. There can be no
assurance that World Airways will be able to enter into additional contracts
with new or existing customers or that it will be able to obtain enough
additional business to fully utilize each aircraft. World Airways' financial
results could be materially adversely affected even by relatively brief periods
of low aircraft utilization and yields. In order to maximize aircraft
utilization, World Airways does not intend to acquire new aircraft unless such
aircraft would be necessary to service existing needs or World Airways has
obtained additional ACMI contracts for the aircraft to service. World Airways
is seeking to obtain additional ACMI contracts with new and existing customers,
to which such new aircraft would be dedicated when placed in service, but World
Airways can provide no assurance that it will obtain new ACMI contracts or that
existing ACMI contracts will be renewed or extended.
Aircraft Fleet
Each of the aircraft in World Airways' existing fleet is to a large extent
contractually dedicated by World Airways to the service of one or more
customers, with limited aircraft available to provide back-up capability.
Therefore, in the event the use of one or more of World Airways' aircraft was
lost, World Airways might have difficulty fulfilling its obligations under one
or more of these contracts, if it were unable to obtain substitute aircraft. On
October 24, 1997 one of the Company's MD-11 aircraft was damaged upon landing.
The aircraft will be out of service for approximately two months while certain
repairs are made. The Company expects insurance to cover repair and certain
related costs, but expects that the Company's loss of revenues that would have
been generated by the aircraft's use will have an adverse effect on the
Company's financial condition and results of operations for the fourth quarter
of 1997. Also, if World Airways is successful in entering into additional
agreements to use its aircraft fleet on a year-round as opposed to seasonal
basis, World Airways will have fewer aircraft available to meet the peak
seasonal demands for its traditional customers such as Garuda for the Hadj
pilgrimage and the USAF for short-term expansion flying. To continue to meet
the peak seasonal demand requirements of its customers, World Airways will have
to acquire additional aircraft on short-term leases. World Airways has
historically been successful in obtaining
14
<PAGE>
MD-11 and DC10-30 aircraft and the financing necessary for the acquisition of
such aircraft. There can be no assurance, however, that World Airways will be
able to lease such aircraft or a satisfactory substitute, that the terms of such
leases will be favorable to World Airways or that World Airways will be able to
obtain satisfactory financing necessary for the acquisition of such aircraft in
the future. Moreover, World Airways may decline to renew most of its MD-11
leases, which are renewable at the Company's option for 10 one-year extensions
in years six through 15 of the lease term. However, the failure to renew such
leases would result in penalties. See "Business--Aircraft Fleet."
Aging DC10-30 Aircraft
World Airways' existing fleet includes four DC10-30 aircraft which were
manufactured between 1974 and 1988. Manufacturer Service Bulletins ("Service
Bulletins") and the FAA's Airworthiness Directives ("Directives") issued under
its "Aging Aircraft" program could cause DC10-30 aircraft operators to be
subject to extensive aircraft examinations and require DC10-30 aircraft to
undergo structural inspections and modifications to address problems of
corrosion and structural fatigue at specified times. It is possible that
Service Bulletins or Directives applicable to the types of aircraft or engines
included in World Airways' fleet could be issued in the future. The cost of
compliance with Directives and Service Bulletins cannot currently be estimated,
but could be substantial and could have a material adverse effect on the
financial condition or results of operations of World Airways.
Reliance on Others
World Airways has entered into agreements with contractors, including other
airlines, to provide certain facilities and services required for its
operations, including all of World Airways' off-wing engine maintenance and most
airframe maintenance. World Airways has also entered into agreements with
contractors to provide security, ground handling and personnel training.
Although World Airways believes that there are many advantages to outsourcing
these activities, the failure of these contractors to provide essential services
that are not otherwise entirely within the control of World Airways could have a
material adverse effect on the financial condition or results of operations of
World Airways.
Maintenance
Engine maintenance accounts for most of World Airways' annual maintenance
expenses. Typically, the hourly cost of engine maintenance increases as the
aircraft ages. World Airways outsources major airframe maintenance and power
plant work to several suppliers. World Airways has a 10-year contract expiring
in August 2003 with United Technologies Corporation's Pratt & Whitney Group for
all off-wing maintenance on the PW 4462 engines that power its MD-11 aircraft.
Under this contract, the manufacturer agreed to provide such maintenance
services at a cost not to exceed specified rates per engine flight hour during
the term of the contract. World Airways' maintenance costs associated with the
MD-11 aircraft and PW 4462 engines have been significantly reduced due in part
to manufacturer guarantees and warranties, which began to expire in 1995 and
which will fully expire by 1998. In addition, the specified rate per engine
flight hour is subject to annual escalation, increasing substantially in 1998.
Accordingly, while World Airways believes the terms of this agreement have
resulted in lower engine maintenance costs than it otherwise would incur, engine
maintenance costs will increase substantially during the last five years of the
agreement. World Airways has begun to accrue these increased expenses in 1997
and such expenses will continue to increase during the remainder of the term of
the contract as World Airways' aircraft fleet ages. See "Business--
Maintenance."
Shareholders Agreement with MHS; Limitation on Voting by Foreign Citizens
MHS currently owns 24.9% of the outstanding Common Stock. Under the
Shareholders Agreement, WorldCorp has agreed to vote its shares of World Airways
Common Stock to elect the number of directors nominated by MHS that represent
MHS' proportionate interest in World Airways, but in no event less than two
directors. In addition, World Airways is not permitted to consummate the sale of
all or substantially all of its business or make a fundamental change in its
line of business without the approval of the directors designated by MHS.
Accordingly, MHS could block World Airways from entering into a transaction or
taking actions that could be in the best interests of stockholders.
Notwithstanding any other provision of the Shareholders Agreement, if without
the prior written consent of MHS, World Airways sells all or substantially all
of its business or
15
<PAGE>
fundamentally changes its line of business, then MHS has the right to require
WorldCorp to purchase all or part of MHS' shares at fair market value, which
could have the effect of discouraging WorldCorp from taking certain actions that
could be in the best interests of other stockholders of World Airways. See "--
World Airways' NOLs." The Shareholders Agreement terminates if either
WorldCorp's or MHS' ownership interest falls below 5% of the outstanding capital
stock of World Airways. The Shareholders Agreement provides that if WorldCorp
were to dispose of its holdings in the Company with the result that WorldCorp's
ownership interest in the Company falls below 51% of the outstanding shares of
Common Stock, then MHS may either sell its shares to a third party or require
WorldCorp to sell a pro rata number of shares held by MHS to the party
purchasing WorldCorp's shares.
Under applicable regulatory restrictions, because World Airways is a U.S.
certificated flag carrier, no more than 25% of the voting stock of World Airways
may be owned or controlled, directly or indirectly, by persons who are not U.S.
citizens ("Foreign Citizens"). World Airways' Certificate of Incorporation and
Bylaws provide that no shares of capital stock may be voted by or at the
direction of Foreign Citizens unless such shares are registered on a separate
stock record (the "Foreign Stock Record"). No shares of Common Stock owned by
Foreign Citizens will be registered on the Foreign Stock Record of World Airways
to the extent that the aggregate ownership by Foreign Citizens reflected in the
Foreign Stock Record would exceed 25% of World Airways' outstanding shares of
Common Stock.
Employee Relations
World Airways' flight attendants are represented by the International
Brotherhood of Teamsters (the "Teamsters") under a collective bargaining
agreement which expires in August 2000. World Airways' flight attendants
challenged the use of foreign flight attendant crews on World Airways' flights
for Malaysian Airlines and Garuda which has historically been World Airways'
operating procedure. World Airways is contractually obligated to permit its
Southeast Asian customers to deploy their own flight attendants. While the
arbitrator in this matter recently denied the union's request for back pay to
affected flight attendants for flying relating to the 1994 Hadj, the arbitrator
concluded that World Airways' contract with its flight attendants requires World
Airways to first actively seek profitable business opportunities that require
using World Airways' flight attendants, before World Airways may accept wet
lease business opportunities that use the flight attendants of World Airways'
customers. World Airways can provide no assurances as to how the imposition of
this requirement will affect World Airways' financial condition or results of
operations. World Airways' cockpit crew members, who are also represented by
the Teamsters, are subject to a four-year collective bargaining agreement
expiring in June 1998. World Airways is unable to predict whether any of its
employees not currently represented by a labor union, such as World Airways'
maintenance personnel, will elect to be represented by a labor union or
collective bargaining unit. The election of such employees for representation
in such an organization could result in employee compensation and working
condition demands that could have a material adverse effect on the financial
condition or results of operations of World Airways.
World Airways' NOLs
As of December 31, 1996, World Airways had net operating loss carryforwards
("NOLs") for federal income tax purposes of $103.8 million ($29.0 million of
which is subject to a $6.9 million annual limitation as a result of an ownership
change of World Airways for tax purposes in 1991). These NOLs, if not utilized
to offset taxable income in future periods, would expire between 1998 and 2011.
Use of World Airways' NOLs in future years could be further limited if an
ownership change were to occur in the future. World Airways believes that
neither the sale of common stock in its initial public offering nor the purchase
of 3,227,000 shares of its Common Stock from WorldCorp (see "Prospectus
Summary--The Private Placement") caused an ownership change. However, the
application of the Internal Revenue Code (the "Code") in this area is subject to
interpretation by the Internal Revenue Service. The NOLs are subject to
examination by the IRS and, thus, are subject to adjustment or disallowance
resulting from any such IRS examination. In addition, conversion of the
Debentures or future transactions in the Common Stock, (see "Prospectus
Summary--The Private Placement") or the common stock of the Company's
stockholders may cause an ownership change, which could result in a
substantial reduction in the annual limitation in the use of the NOLs and the
loss of a substantial portion of the NOLs available to the Company.
Accordingly, prospective purchasers of the Debentures should not assume the
availability of any portion of World Airways' currently existing or future
NOLs, if any, in making their investment decisions.
16
<PAGE>
Seasonality
Historically, World Airways' business has been significantly affected by
seasonal factors. During the first quarter, World Airways typically experiences
lower levels of utilization and yields due to lower demand for passenger and
cargo services relative to other times of the year. World Airways experiences
higher levels of utilization and yields in the second quarter, principally due
to peak demand for commercial passenger services associated with the annual Hadj
pilgrimage. In 1997, World Airways' flight operations associated with the Hadj
pilgrimage occurred from March 15 to May 20. Because the Islamic calendar is a
lunar-based calendar, the Hadj pilgrimage occurs approximately 10 to 12 days
earlier each year relative to the Western (Gregorian) calendar. As a result,
revenues resulting from future Hadj pilgrimage contracts will continue to shift
from the second quarter to the first quarter over the next several years. World
Airways believes that its contracts with Malaysian Airlines and the USAF should
lessen the effect of these seasonal factors.
Legal and Administrative Proceedings
World Airways has periodically received correspondence from the FAA with
respect to minor noncompliance matters. In November 1996, as the FAA has
increased its scrutiny of U.S. airlines, World Airways was assessed a
preliminary fine of $810,000 in connection with certain security violations by
ground handling crews contracted by World Airways for services at foreign
airport locations. Under 49 U.S.C. 46301, any violation of pertinent
provisions of 49 U.S.C. 40101 or related rules is subject to a civil penalty
for each violation. Upon review of the evidence or facts and circumstances
relating to the violation, the statute allows for the compromise of proposed
civil penalties. The penalties were proposed by the FAA in connection with
recent inspections at foreign airport facilities and relate primarily to ground
handling services provided by World Airways' customers in connection with their
operations; specifically, the inspection procedures of its aircraft, passengers
and associated cargo. In each of these instances, World Airways was in
compliance with international regulations, but not the more stringent U.S.
requirements, despite the fact that the flights in question did not originate or
terminate in the United States. World Airways has taken steps to comply with
the U.S. requirements. In September 1997, the Company entered into a consent
order and settlement agreement with the FAA in connection with the above-
mentioned alleged violations. Pursuant to such agreement, the Company is liable
for a sum of $610,000, of which $405,000 was paid in September. The remaining
$205,000 was suspended and will be forgiven if the Company complies with the
provisions of the settlement agreement, including not incurring any security
violations during the one-year period following execution of the settlement
agreement. While World Airways believes it is currently in compliance in all
material respects with all appropriate standards and has all required licenses
and authorities, any material non-compliance by World Airways therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the financial condition or results of operations of World
Airways.
In addition, World Airways is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by World
Airways to be likely to have a material adverse effect on the financial
condition of World Airways. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Legal and Administrative
Proceedings."
Possible Volatility of Stock Price
The market price of the Common Stock has been subject to significant
fluctuations in response to World Airways' operating results and other factors.
The market price of the shares of the Common Stock has varied significantly and
may be volatile depending on news announcements and changes in general market
conditions. In particular, news announcements regarding quarterly results of
operations, competitive developments, litigation or governmental regulatory
actions impacting the Company may adversely affect the Common Stock price and,
consequently, the price of the Debentures. In addition, because the number of
shares of Common Stock held by the public is relatively small, the sale of
substantial number of shares of the Common Stock in a short period of time could
adversely affect the market price of the Common Stock and, consequently, the
price of the Debentures. In addition, the stock market has from time to time
experienced extreme price and volume volatility. These fluctuations may be
unrelated to the operating performance of particular companies whose shares are
traded. Market fluctuations
17
<PAGE>
may adversely affect the market price of the Common Stock and the Debentures.
There can be no assurance that the market price of the Common Stock and the
Debentures will not decline in the future.
Absence of an Existing Market for the Debentures; Possible Volatility of
Debenture and Common Stock Prices
The Debentures constitute a new issue of securities with no established
trading market. There can be no assurance as to the liquidity of any market
that may develop for the Debentures, the ability of the holders to sell their
Debentures or the price at which holders of the Debentures may be able to sell
their Debentures. Future trading prices of the Debentures will depend on many
factors, including, among other things, prevailing interest rates, World
Airways' operating results, the price of the Common Stock and the market for
similar securities. Although the Initial Purchasers have informed the Company
that they currently intend to make a market in the Debentures, they are not
obligated to do so and any such market making may be discontinued at any time
without notice. In addition such market-making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act, and may be limited
during the period of effectiveness of the shelf registration statement to be
filed in connection with the sale of the Debentures. Accordingly, there can be
no assurance as to the development or liquidity of any market for the
Debentures. The Debentures have been designated for trading in the PORTAL
market by eligible investors. The Company does not intend to apply for listing
of the Debentures on any securities exchange or for quotation through any
automated quotation system. Historically, the market for non-investment grade
debt has been subject to disruptions that have caused substantial volatility in
the prices of securities similar to the Debentures. There can be no assurance
that, if a market for the Debentures were to develop, such a market would not be
subject to similar disruptions. The liquidity of, and the trading market for,
the Debentures may also be materially adversely affected by the declines in the
market for debt securities generally. Such a decline may materially and
adversely affect such liquidity and trading independent of the financial
performance of, and prospects for, the Company. Depending on the prevailing
interest rates, the market for similar securities, the financial condition of
the Company and other factors, the Debentures may trade at a discount from their
principal amount. See "Prospectus Summary The Private Placement,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Certain Relationships and
Transactions" and "Description of Debentures."
Anti-takeover Provisions; Certain Provisions of Delaware Law, Certificate of
Incorporation and Bylaws
Certain provisions of Delaware law, World Airways' Certificate of
Incorporation and Bylaws and the Shareholders Agreement could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of World Airways. Certain of
these provisions allow World Airways to issue preferred stock with rights senior
to those of the Common Stock without any further vote or action by the holders
of Common Stock. The issuance of preferred stock of World Airways could
decrease the amount of earnings and assets available for distribution to the
holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock and, consequently the market price of the Debentures.
In addition, the Certificate of Incorporation provides for the Board of
Directors to be divided into three classes of directors serving staggered three-
year terms. Classification of the Board of Directors expands the time required
to change the composition of a majority of directors and may tend to discourage
an acquisition proposal for World Airways.
Control by WorldCorp; Potential Conflicts of Interest
As of September 30, 1997, WorldCorp owned approximately 46.3% of the
outstanding Common Stock. WorldCorp is a holding company that owns positions in
two companies: InteliData Technologies Corporation and World Airways. WorldCorp
is highly leveraged and therefore requires substantial funds to cover debt
service each year. As a holding company, all of WorldCorp's funds are generated
through its subsidiaries, neither of which is expected to pay dividends in the
foreseeable future. As a result of WorldCorp's cash requirements, it may be
required to sell additional shares of Common Stock during 1997, and such sales,
or the threat of such sales, could have a material adverse effect on the market
price of the Common Stock. Except as limited by contractual arrangements with
MHS, WorldCorp also is in a position to control the outcome of many issues
submitted to World Airways' stockholders, including the election of all of World
Airways' Board of Directors, adoption of amendments to World Airways'
Certificate of Incorporation, and approval of mergers.
18
<PAGE>
Risks Related to the Air Transportation Industry
Cyclical Nature of Air Carrier Business
World Airways operates in a challenging business environment. The air
transportation industry is highly sensitive to general economic conditions.
Since a substantial portion of passenger airline travel (both business and
personal) is discretionary, the industry tends to experience severe adverse
financial results during general economic downturns and can be adversely
affected by unexpected global political developments. The financial results of
air cargo carriers are also adversely affected by general economic downturns due
to the reduced demand for air cargo transportation. In 1993 and 1994, the
combination of a generally weak global economy and the depressed state of the
air transportation industry adversely affected World Airways' operating
performance. Although World Airways recently has experienced a growth in demand
for its services, such that block hours flown from continuing operations
increased 10% for the first six months of 1997 over the same period in 1996 and
by 23% for 1996 over 1995, there can be no assurance that this level of growth
will continue.
Competition
The market for outsourcing air passenger and cargo ACMI services is highly
competitive. Certain of the passenger and cargo air carriers against which
World Airways competes possess substantially greater financial resources and
more extensive facilities and equipment than those which are now, or will in the
foreseeable future become, available to World Airways. World Airways believes
that the most important bases for competition in the ACMI outsourcing business
are the age of the aircraft fleet, the passenger, payload and cubic capacities
of the aircraft, and the price, flexibility, quality and reliability of the air
transportation service provided. Competitors in the ACMI outsourcing market
include MartinAir Holland, Tower Air and American TransAir and all-cargo
carriers, such as Atlas Air, Gemini Air Cargo, Polar Air Cargo and Kitty Hawk,
and scheduled and non-scheduled passenger carriers which have substantial belly
capacity. The ability of World Airways to continue to grow depends upon its
success in convincing major international airlines that outsourcing some portion
of their air passenger and cargo business remains more cost-effective than
undertaking passenger or cargo operations with their own incremental capacity
and resources. The allocation of military air transportation contracts by the
USAF is based upon the number and type of aircraft a carrier, alone or through a
teaming arrangement, makes available for use in times of national emergencies.
The formation of competing teaming arrangements comprised of larger partners
than those sponsored by World Airways, an increase by other air carriers in
their commitment of aircraft to the emergency program, or the withdrawal of
World Airways' current partners, could adversely affect the size of the USAF
contracts, if any, which are awarded to World Airways in future years.
Regulation
World Airways is subject to government regulation and control under the laws
of the United States and the various other countries in which it operates. It is
also governed by bilateral air transport services agreements between the U.S.
and the countries to which World Airways provides airline service. World Airways
is subject to Title 49 of the United States Code (the "Transportation Code"),
under which the Department of Transportation (the "DOT") and the Federal
Aviation Administration (the "FAA") exercise regulatory authority. Additionally,
foreign governments assert jurisdiction over air routes and fares to and from
the U.S., airport operation rights and facilities access. Due to its
participation in CRAF, World Airways is subject to inspections approximately
every two years by the USAF as a condition to retaining its eligibility to
provide military charter flights. The USAF may terminate its contract with World
Airways if World Airways fails to pass such inspection or otherwise fails to
maintain satisfactory performance levels. World Airways has periodically
received correspondence from the FAA with respect to minor noncompliance
matters. See "Business--Regulation."
19
<PAGE>
Insurance Coverage and Expenses
World Airways is exposed to potential losses that may be incurred in the event
of an aircraft accident. Any such accident could involve not only repair or
replacement of a damaged aircraft and the consequent temporary or permanent loss
from service, but also significant potential claims of injured passengers and
others. World Airways is required by the DOT to carry liability insurance on
each of its aircraft. Although World Airways believes its current insurance
coverage is adequate and consistent with the current industry practice, there
can be no assurance that the amount of such coverage will not be changed or that
World Airways will not bear substantial losses from accidents. Substantial
claims resulting from an accident in excess of related insurance coverage could
have a material adverse effect on the financial condition or results of
operations of World Airways. In addition, World Airways' insurance expenses
could significantly increase if World Airways were to provide service to
destinations where military action is taking place. Any such increases in
expenses could have a material adverse effect on the financial condition or
results of operations of World Airways. As is customary in the airline
business, World Airways has no business interruption insurance. Any extended
interruption of World Airways' operations due to the loss, or unavailability due
to unscheduled servicing or repair, or lack of availability of substitute
aircraft could have a material adverse effect on the financial condition or
results of operations of World Airways. See "Business--Insurance."
Aviation Fuel
The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products.
Fluctuations in the price of fuel have not had a significant impact on World
Airways' operations in recent years because, in general, World Airways' ACMI
contracts with its customers limit World Airways' exposure to increases in fuel
prices. However, a substantial increase in the price or the unavailability of
aviation fuel could have a material adverse effect on the air transportation
industry in general and the financial condition and results of operations of
World Airways.
USE OF PROCEEDS
The Company will not receive any proceeds from the sales of the Debentures or
the Shares by the Selling Securityholders. See " Selling Securityholders" for a
list of those persons and entities receiving the proceeds from the sales of the
Debentures or the Shares pursuant to this Prospectus. The Company will not
receive any proceeds from the issuance of Shares upon conversion of the
Debentures.
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on Nasdaq under the symbol "WLDA." The following
table sets forth, for the periods indicated the high and low sales prices of the
Common Stock as reported by Nasdaq for each quarter following the Company's
October 1995 initial public offering:
<TABLE>
<CAPTION>
High Low
----------- ------------
<S> <C> <C>
1995
Fourth Quarter (beginning October 5).................. $12 3/4 $9
1996
First Quarter......................................... 11 1/8 6
Second Quarter........................................ 11 1/4 6 3/4
Third Quarter......................................... 7 3/4 4 3/4
Fourth Quarter........................................ 11 1/8 6 5/8
1997
First Quarter......................................... 10 1/2 7
Second Quarter........................................ 9 3/4 6 1/4
Third Quarter......................................... 9 1/2 5 1/4
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
Fourth Quarter (through November 3)................... 9 1/2 7 7/16
</TABLE>
PRICE RANGE OF DEBENTURES
The Debentures were originally issued on August 26, 1997. As of the date
hereof, there is no public market for the Debentures, although the Debentures
have been eligible for trading in the PORTAL Market.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends or distributions on
its Common Stock since the payment of a distribution to WorldCorp in 1992. The
Company currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future. Any future decision
concerning the payment of dividends on the Common Stock will depend upon the
results of operations, financial condition and capital expenditure plans of the
Company, as well as such other factors as the Board of Directors, in its sole
discretion, may consider relevant.
The Credit Agreement contains restrictions on the Company's ability to pay
dividends on the Common Stock. The Credit Agreement provides that the Company
shall not declare, pay or make any dividends or distributions in any six-month
period which aggregate in excess of the lesser of $4.5 million or 50% of the
Company's net income for the previous six months and requires that the Company
have a cash balance of not less than $7.5 million after giving effect to such
dividend or distribution. Additionally, WorldCorp is subject to the provisions
of an indenture, expiring in 2004, which causes the Company not to pay dividends
upon the occurrence of any events of default by WorldCorp under the indenture.
However, the indenture is not applicable to World Airways if WorldCorp's
ownership percentage is below 50% of the issued and outstanding shares of Common
Stock. As of September 30, 1997, WorldCorp owned approximately 46.3% of the
outstanding Common Stock. This percentage could increase if the Company
purchases shares from other stockholders. See "Prospectus Summary--The Private
Placement."
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of World Airways at June 30,
1997, and as adjusted to give effect to the completion of the Private Placement
and the application of the net proceeds therefrom. See "Prospectus Summary--The
Private Placement." This information should be read in conjunction with the
Company's Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus or incorporated by reference herein. Except as otherwise noted
below, the information set forth in the table assumes no exchange or redemption
of the Debentures.
<TABLE>
<CAPTION>
At June 30, 1997
--------------------------------------------------------
Actual As Adjusted(1) Pro Forma(2)
--------------- ------------------ -------------------
(Dollars in thousands)
<S> <C> <C> <C>
Notes payable and current maturities of long-term obligations......... $ 11,694 $ 10,494 $ 10,494
======== ======== ========
Long-term obligations, net of current maturities (including
capital lease obligations)........................................... $ 29,070 $ 76,308 $ 76,308
Stockholders' equity:
Preferred stock, $0.001 par value; none authorized, issued
and outstanding; 5,000,000 shares authorized and none
issued and outstanding as adjusted................................. -- -- --
Common stock, $0.001 par value; 40,000,000 shares
authorized, 12,000,064 shares issued and 11,230,064
outstanding(3)...................................................... 12 12 12
Additional paid-in capital............................................ 42,522 42,522 42,522
Contributed capital................................................... 3,000 3,000 3,000
ESSOP guaranteed bank loan............................................ (461) (461) (461)
Accumulated deficit................................................... (18,340) (18,340) (18,340)
Treasury stock, at cost............................................... (7,837) (32,524) (38,437)
-------- -------- --------
Total stockholders' equity (deficit)............................... 18,896 (5,791) (11,704)
-------- -------- --------
Total capitalization............................................ $ 47,966 $ 70,517 $ 64,604
======== ======== ========
</TABLE>
- --------------
(1) Adjusted to reflect the completion of the Private Placement, the repayment
of borrowings under the Credit Agreement and the purchase of 3,227,000
shares of Common Stock from WorldCorp for approximately $24.7 million in
cash. On September 18, 1997, the Company purchased 3,227,000 shares of
Common Stock from WorldCorp at a purchase price of $7.65 per share. As a
result, Common Stock outstanding was reduced to 8,003,064 shares. These as
adjusted amounts do not include the effect of additional repurchases of
Common Stock from WorldCorp or MHS which may occur as described in
"Prospectus Summary--The Private Placement."
(2) Assumes the Company repurchases an additional 773,000 shares of Common Stock
at a purchase price of $7.65 per share pursuant to the Agreement as
described in "Prospectus Summary--The Private Placement." As a result,
Common Stock outstanding would be reduced to 7,230,064 shares. Consummation
of any further stock repurchases pursuant to the Agreement is subject to
certain contractual and regulatory contingencies. Therefore, there can be
no assurances that any such repurchases shall occur. Failure by the Company
to effect the repurchase of at least 4.0 million shares of Common Stock
within 150 days after the original issue of the Debentures, is a Repurchase
Event. See "Description of Debentures--Certain Rights to Require Repurchase
of Debentures" and "Prospectus Summary--The Private Placement."
(3) These data exclude 1.2 million shares of Common Stock reserved for issuance
upon the exercise of options granted to date pursuant to the Company's stock
option plans, and the shares of Common Stock reserved for issuance upon
conversion of Debentures.
22
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(Dollars in thousands, except operating and per share data)
The following table sets forth selected income statement, operating data and
balance sheet data for World Airways for the periods indicated. The historical
financial information for, and as of the end of, each of the years ended
December 31, 1992, 1993, 1994, 1995 and 1996 are derived from the audited
financial statements of World Airways for such years. This information should
be read in conjunction with, and is qualified by reference to, the financial
statements of World Airways and the notes thereto included in this Prospectus.
The following selected financial data for the six months ended June 30, 1996 and
1997 are derived from World Airways' unaudited financial statements. In the
opinion of management of World Airways, such unaudited financial statements
include all adjustments necessary for a fair presentation of the results of
operations for such periods. Operating results for the six months ended June
30, 1997, are not necessarily indicative of results that may be expected for the
entire year ending December 31, 1997. The data appearing under the caption
"Operating Data" are derived from the records of World Airways. The unaudited as
adjusted income statement data for the year ended December 31, 1996 and the six
months ended June 30, 1997, give effect to the Private Placement, the repayment
of borrowings under the Credit Agreement, and the purchase of 3,227,000 shares
of Common Stock from WorldCorp as if they were completed on January 1, 1996 and
the unaudited as adjusted balance sheet data give effect to these transactions
as if they were completed on June 30, 1997.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1992 1993 1994 1995(1) 1996(1)
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating revenues........................................... $180,293 $ 178,736 $ 180,715 $242,386 $309,587
Operating expenses........................................... 173,028 186,065(2) 185,916(3) 226,488 287,942
-------- ---------- ---------- -------- --------
Operating income (loss)...................................... 7,265(5) (7,329) (5,201) 15,898 21,645
Other income (expense)....................................... 1,389 (1,656) (3,826) (1,150) (2,613)
-------- ---------- ---------- -------- -------
Earnings (los) from continuing operations before income
taxes and change in accounting principle.................... 8,654 (8,985) (9,027) 14,748 19,032
Income tax expense (benefit)................................. 236 64 (26) 602 679
-------- ---------- ---------- -------- --------
Earnings (loss) from continuing operations before change
in accounting principle..................................... 8,418 (9,048) (9,001) 14,146 18,353
Discontinued operations...................................... -- -- -- (5,250) (32,375)
Cumulative effect of change in accounting principle(6)....... (1,973) -- -- -- --
-------- ---------- ---------- -------- --------
Net earnings (loss).......................................... 6,445 (9,048) (9,001) 8,896 (14,022)
======== ========== ========== ======== ========
Weighted average common stock and common equivalent
shares outstanding (in thousands)........................... 9,000 9,000 9,939 10,572 11,806
Earnings (loss) per common share from continuing
operations.................................................. $ 0.94 $ (1.01) $ (0.91) $ 1.34 $ 1.55
Net earnings (loss) per common share......................... $ 0.72 $ (1.01) $ (0.91) $ 0.84 $ (1.19)
Cash dividends per common share.............................. $ 2.16 -- -- -- --
Ratio of earnings to fixed charges(7)........................ 1.65x -- -- 1.58x 1.60x
Deficiency in earnings to cover fixed charges(7)............. -- $ 8,984 $ 9,027 -- --
EBITDA(8).................................................... $ 12,186 $ (1,756) $ (1,195) $ 21,954 $ 29,677
Operating Data:
Block hours flown(9):
from continuing operations.................................. 22,263 23,462 26,455 35,628 43,897
from discontinued operations(1)............................. -- -- -- 1,714 6,628
-------- ---------- ---------- -------- --------
Total..................................................... 22,263 23,462 26,455 37,342 50,525
======== ========== ========== ======== ========
Average aircraft equivalents(10)............................. 7.2 8.8 8.2 10.3 14.1
Daily aircraft utilization (in block hours)(11).............. 8.4 7.3 8.8 9.9 9.8
Operating income (loss) per continuing block hour(12)........ $ 326 $ (312) $ (197) $ 446 $ 493
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1996(1) 1997
------------ -----------
<S> <C> <C>
Income Statement Data:
Operating revenues.......................................... $151,873 $ 160,676
Operating expenses.......................................... 139,927 147,842(4)
-------- ----------
Operating income (loss)..................................... 11,946 12,834
Other income (expense)...................................... (859) (1,818)
-------- ----------
Earnings (loss) from continuing operations before income
taxes and change in accounting principle................... 11,087 11,016
Income tax expense (benefit)................................ 315 350
-------- ----------
Earnings (loss) from continuing operations before change
in accounting principle.................................... 10,772 10,666
Discontinued operations..................................... (32,705) --
Cumulative effect of change in accounting principle(6)...... -- --
-------- ----------
Net earnings (loss)......................................... (21,933) 10,666
======== ==========
Weighted average common stock and common equivalent
shares outstanding (in thousands).......................... 12,000 11,236
Earnings (loss) per common share from continuing
operations................................................. $ 0.90 $ 0.95
Net earnings (loss) per common share........................ $ (1.83) $ 0.95
Cash dividends per common share............................. -- --
Ratio of earnings to fixed charges(7)....................... 1.79x 1.58x
Deficiency in earnings to cover fixed charges(7)............ -- --
EBITDA(8)................................................... $ 15,840 $ 17,165
Operating Data:
Block hours flown(9):
from continuing operations................................. 22,007 24,150
from discontinued operations(1)............................ 2,534 --
-------- ----------
Total.................................................... 24,541 24,150
======== ==========
Average aircraft equivalents(10)............................ 13.3 13.7
Daily aircraft utilization (in block hours)(11)............. 10.2 9.8
Operating income (loss) per continuing block hour(12)....... $ 543 $ 531
</TABLE>
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------- At June 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and restricted short-term investments .................... $12,958 $ 11,746 $ 4,722 $ 26,180 $ 8,075 $ 9,471
Working capital (deficit) ..................................... (8,305) (17,441) (25,794) (8,883) (29,556) (31,852)
Net equipment and property .................................... 26,957 28,700 24,666 52,429 65,002 73,147
Total assets .................................................. 66,486 88,512 78,051 130,695 130,124 127,669
Notes payable and long-term obligations (including current
maturities) .................................................. 13,076 42,256 33,826 37,112 50,538 40,764
Accumulated deficit ........................................... (5,831) (14,879) (23,880) (14,984) (29,006) (18,340)
Total stockholders' equity (deficit) .......................... 1,292 (7,756) (1,367) 30,340 8,362 18,896
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
For the year ended For the six months
December 31, 1996 ended June 30, 1997
Actual As Adjusted(13) Actual As Adjusted(13)
---------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
As Adjusted Income Statement Data:
Operating revenues .................................................... $309,587 $309,587 $ 160,676 $160,676
Operating expenses .................................................... 287,942 287,942 147,842(4) 147,842
-------- -------- ---------- --------
Operating income ...................................................... 21,645 21,645 12,834 12,834
Other income (expense) ................................................ (2,613) (6,059) (1,818) (3,628)
-------- -------- ---------- --------
Earnings from continuing operations before income taxes ............... 19,032 15,586 11,016 9,206
Income tax expense .................................................... (679) (607) (350) (312)
-------- -------- ---------- --------
Earnings from continuing operations ................................... 18,353 14,979 10,666 8,894
Discontinued operations ............................................... (32,375) (32,447) -- --
-------- -------- ---------- --------
Net earnings (loss) ................................................... $(14,022) $(17,468) $ 10,666 $ 8,894
-------- -------- ========== ========
Primary earnings (loss) per common share:
Continuing operations ................................................ $ 1.55 $ 1.74 $ 0.95 $ 1.11
Discontinued operations .............................................. $ (2.74) $ (3.76) $ -- $ --
-------- -------- ---------- --------
Net earnings (loss) .................................................. $ (1.19) $ (2.02) $ 0.95 $ 1.11
-------- -------- ========== ========
Weighted average shares outstanding (in thousands) ................... 11,806 8,628 11,234 8,007
Fully diluted earnings (loss) per common share:
Continuing operations ................................................ $ 1.55 $ * $ 0.95 $ 0.80
Discontinued operations .............................................. $ (2.74) $ * $ -- $ --
-------- -------- ---------- --------
Net earnings (loss) .................................................. $ (1.19) $ * $ 0.95 $ 0.80
-------- ======== ========== ========
Weighted average shares outstanding (in thousands) ................... 11,806 * 11,236 13,627
Ratio of earnings to fixed charges(7) ................................. 1.60x 1.45x 1.58x 1.45x
EBITDA(8) ............................................................. $ 29,677 $ 29,677 $ 17,165 $ 17,165
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1997
------------------------
Actual As Adjusted(13)
--------- -------------
<S> <C> <C>
As Adjusted Balance Sheet Data:
Cash and restricted short-term investments ........................................................ $ 9,471 $ 29,272
Working capital (deficit) ......................................................................... (31,852) (10,851)
Net equipment and property ........................................................................ 73,147 73,147
Total assets ...................................................................................... 127,669 149,020
Notes payable and long-term obligations (including current maturities) ............................ 40,764 86,802
Accumulated deficit ............................................................................... (18,340) (18,340)
Total stockholders' equity (deficit) .............................................................. 18,896 (5,791)
</TABLE>
- --------------
* Fully diluted earnings per share are anti-dilutive.
(1 ) Operating revenues and expenses for 1995 and 1996 exclude discontinued
operations, consisting of the Company's scheduled passenger and charter
operations.
(2) Operating expenses in 1993 include $2.3 million of termination fees related
to the early return of three DC10-30 aircraft.
(3) Operating expenses in 1994 include a $4.2 million reversal of excess
accrued maintenance reserves associated with the expiration of three DC10-
30 aircraft leases during 1994.
(4) Operating expenses for the six months ended June 30, 1997, include a $1.0
million reversal of accrued maintenance expense in excess of the cost of an
overhaul of a DC-10 aircraft.
(5) Operating income in 1992 includes $4.1 million related to settlement of
contract claims with the U.S. Government related to Operation Desert
Shield/Desert Storm.
(6) Cumulative effect of change in accounting principle from the adoption of
FAS #106, Employer's Accounting For Post-Retirement Benefits Other Than
Pensions.
(7) For purposes of computing this ratio, earnings consist of earnings (loss)
from continuing operations before income taxes and change in accounting
principle and fixed charges. Fixed charges consist of interest expense,
including amortization of debt issuance costs and one-third of rent expense
which is deemed to be representative of interest expense.
(8) EBITDA represents operating income (loss) excluding depreciation and
amortization. The Company has included EBITDA to provide additional
information related to the Company's ability to service debt. EBITDA should
not be considered as an alternative measure of the Company's net income or
cash flow (which are determined in accordance with generally accepted
accounting principles), operating performance or liquidity.
(9) "Block hours flown" for an aircraft represents the elapsed time computed
from the moment the aircraft first moves under its own power at the point
of origin to the time it comes to rest at its destination.
(10) "Average aircraft equivalents" represents the total number of aircraft in
service during each day of a given period divided by the number of days in
the given period.
(11) "Daily aircraft utilization" is determined by dividing the block hours
flown during such period by the number of days during such period that the
aircraft were leased by the Company.
(12) "Operating income (loss) per continuing block hour" for any period
represents the amount determined by dividing operating income (loss) for
such period by the total block hours flown for such period.
(13) Adjusted to give effect to the sale by the Company of the Debentures in the
Private Placement, the repayment of borrowings under the Credit Agreement,
as described in "Prospectus Summary--The Private Placement," and the
purchase of 3,227,000 shares of Common Stock from WorldCorp. The as
adjusted amounts do not assume any interest earnings on the net proceeds
from the Private Placement. In the event that the Company repurchases
additional shares of Common Stock, as described in "Prospectus Summary--The
Private Placement," total stockholders' equity would be reduced by the
amount of the purchase price for such Common Stock. See "Capitalization."
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with the
Audited and Unaudited Financial Statements (including the Notes thereto)
appearing elsewhere in this Prospectus.
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways as
reflected in its financial statements. World Airways was organized in March
1948 and became a wholly owned subsidiary of WorldCorp in a holding company
reorganization in 1987. In February 1994, pursuant to an October 1993
agreement, WorldCorp sold 24.9% of its ownership to MHS. Effective December 31,
1994, WorldCorp increased its ownership in the Company to 80.1% through the
purchase of 5% of World Airways common stock held by MHS. In October 1995, the
Company completed an initial public offering in which 2,000,000 shares were
issued and sold by the Company and 900,000 shares were sold by WorldCorp. On
September 18, 1997, WorldCorp sold 3,227,000 shares of Common Stock to the
Company. See "Prospectus Summary--The Private Placement." At September 30,
1997, WorldCorp and MHS owned 46.3% and 24.9%, respectively, of the outstanding
common stock of World Airways. The balance was publicly traded.
The Company had an overall contract backlog at June 30, 1997 of $338.7
million, compared to $532.6 million at June 30, 1996. Approximately $116.8
million of the backlog relates to operations during the remainder of 1997. The
Company's backlog for each contract is determined by multiplying the minimum
number of block hours (defined as the elapsed time computed from the moment the
aircraft first moves under its own power at the point of origin to the time it
comes to rest at its destination) guaranteed under the applicable contract by
the specified hourly rate under such contract. Approximately 70% and 13% of the
backlog relates to its contracts with Malaysian Airlines and Philippine
Airlines, respectively. In addition, a significant portion of the Company's
current contracts expire near the end of 1997. Although there can be no
assurance that it will be able to secure additional business to reduce this
excess capacity, the Company is actively seeking customers for 1998 and beyond.
The Company's financial results and financial condition would be affected
adversely if the Company is unable to secure additional business to reduce this
excess capacity.
Results of Operations
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Total block hours, including discontinued operations, decreased 391 hours, or
2%, to 24,150 hours in the first six months of 1997 from 24,541 hours in 1996,
with an average of 13.7 available aircraft per day in 1997 compared to 13.3 in
1996. Average daily utilization (block hours flown per day per aircraft)
decreased to 9.8 hours in 1997 from 10.2 hours in 1996. In 1997, wet lease
contracts accounted for 90% of total block hours, an increase from 74% for the
six months ended June 30, 1996. Total operating revenues increased $8.8
million, or 6%, to $160.7 million in 1997 from $151.9 million in 1996.
Continuing Operations
Block hours from continuing operations increased 2,143 hours, or 10%, to
24,150 hours in the first six months of 1997 from 22,007 hours in 1996.
Operating Revenues. Revenues from flight operations increased $13.7 million,
or 9%, to $158.5 million in 1997 from $144.8 million in 1996. This increase was
primarily attributable to the increase in block hours flown, partially offset by
a shift in its mix of business during 1997 with an increase in wet lease
operations and a decrease in full service operations.
Operating Expenses. Total operating expenses increased $7.9 million, or 6%,
in 1997 to $147.8 million from $139.9 million in 1996.
25
<PAGE>
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft costs, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses decreased $0.2 million in 1997 to
$33.1 million from $33.3 million in 1996. This decrease resulted primarily from
the shift in the mix of business from full service to wet lease operations,
partially offset by higher crew costs. The Company expects that it will
experience increased training costs during the remainder of 1997 as a result of
crewmember attrition.
Maintenance expenses increased $4.1 million, or 13%, in 1997 to $34.6 million
from $30.5 million in 1996. This increase resulted primarily from the increase
in the number of aircraft dedicated to the Company's continuing operations, the
integration of additional aircraft into the fleet, and a corresponding increase
in block hours flown. In addition, the Company experienced an increase in costs
of approximately $1.2 million associated with the MD-11 aircraft and related
engines as a result of certain manufacturer guarantees and warranties which
began to expire in 1995 and will fully expire by 1998. The Company expects its
maintenance expense to increase further in 1997 and 1998 due to escalations in
the specified rates per hour under the Company's maintenance agreement. The
increase was partially offset by a reversal in 1997 of $1.0 million of accrued
maintenance expense in excess of the cost of an overhaul of a DC-10 aircraft.
Aircraft costs increased $7.9 million, or 19%, in 1997 to $49.4 million from
$41.5 million in 1996. This increase resulted from the increase in the number
of aircraft dedicated to the Company's continuing operations, primarily due to
the lease of two MD-11ER aircraft in March 1996, and the lease of additional
spare engines necessary to maintain the expanded fleet.
Fuel expenses decreased $2.4 million, or 30%, in 1997 to $5.7 million from
$8.1 million in 1996. This decrease is due primarily to the shift from full
service to wet lease operations where the Company is not responsible for fuel
costs. This decrease was partially offset by an increase in price per gallon.
Promotions, sales and commissions increased $1.1 million in 1997 to $4.7
million from $3.6 million in 1996. This increase resulted primarily from
expenses incurred in connection with a customer contract.
Depreciation and amortization increased $0.4 million in 1997 to $4.3 million
from $3.9 million in 1996. This increase resulted primarily from an increase in
spare parts required to support the additional MD-11 aircraft described above,
offset by a decrease in the amortization of certain intangible assets.
General and administrative expenses increased $2.7 million, or 24%, in 1997 to
$13.8 million from $11.1 million in 1996. This increase was primarily due to
the hiring of additional administrative personnel, beginning in the second
quarter of 1996, necessary to support the growth in the Company's core business
and an increase in property tax accruals. As part of its strategy to increase
its marketing efforts, the Company is currently increasing its sales and
marketing staff. As a result, the Company expects a modest increase in general
and administrative expenses during the second half of 1997.
Other Income (Expense). Other expenses increased by $0.9 million, or 100%, in
1997 to $1.8 million from $0.9 million in 1996. This increase was primarily
attributable to additional interest expense associated with the purchase of
additional spare engines related to the MD-11ERs, along with a decrease in
interest income due mainly to a decrease in cash balances.
Discontinued Operations
The Company commenced scheduled service between Tel Aviv and New York in July
1995. In the first quarter of 1996, the Company generated $4.2 million in losses
related to these operations. In the second quarter of 1996, the Company expanded
its scheduled service operations with service between the United States and
South Africa and introduced scheduled charter operations between the United
States and various destinations within Europe. As the Company was unable to
operate these scheduled service operations profitably, in July 1996, the Company
announced its decision to exit its scheduled service operations by October 1996
and focus its operations on its core wet lease operations. Consistent with this
decision, World Airways ceased all scheduled operations as of October 27, 1996.
26
<PAGE>
As a result, the Company's scheduled service operations were reflected as
discontinued operations as of June 30, 1996, and prior period results were
restated to reflect scheduled service operations as discontinued operations.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total block hours increased 13,183 hours, or 35%, to 50,525 hours in 1996 from
37,342 hours in 1995, with an average of 14.1 available aircraft per day in 1996
compared to 10.3 in 1995. Average daily utilization (block hours flown per day
per aircraft) decreased to 9.8 hours in 1996 from 9.9 hours in 1995. In 1996,
the Company continued to obtain a higher percentage of its revenues under wet
lease contracts as opposed to full service contracts. In 1996, wet lease
contracts accounted for 68% of total block hours, consistent with 70% in 1995.
Total operating revenues increased $67.2 million, or 28%, to $309.6 million in
1996 from $242.4 million in 1995.
Continuing Operations
Block hours from continuing operations increased 8,269 hours, or 23%, to
43,897 hours in 1996 from 35,628 hours in 1995.
Operating Revenues. Revenues from flight operations increased $64.3 million,
or 28%, to $296.9 million in 1996 from $232.6 million in 1995. This increase
was primarily attributable to an increase in military flying and an increase in
revenues generated from its 1996 Hadj operations and services to certain
international carriers, partially offset by a decrease in cargo operations
resulting from a shift in the mix of business during 1996.
Operating Expenses. Total operating expenses increased $61.4 million, or 27%,
in 1996 to $287.9 million from $226.5 million in 1995.
Flight operations expenses increased $5.9 million, or 9%, in 1996 to $71.1
million from $65.2 million in 1995. This increase resulted primarily from an
increase in block hours flown and higher crew costs and up-front training
expenses in connection with the integration of additional aircraft into the
fleet. These increases were partially offset by a decrease in accrued profit
sharing expenses. In 1995, the Company accrued profit sharing expenses as a
result of earnings experienced during that period. No such accrual is necessary
in 1996 as a result of losses from the discontinuation of scheduled service
operations. In addition, the Company expects that its training costs will
increase in 1997 as a result of crewmember attrition.
Maintenance expenses increased $18.7 million, or 45%, in 1996 to $60.5 million
from $41.8 million in 1995. This increase resulted primarily from the
integration of additional aircraft into the fleet and a corresponding increase
in block hours flown. In addition, the Company experienced an increase in costs
associated with the MD-11 aircraft and related engines as a result of certain
manufacturer guarantees and warranties which began to expire in 1995 and will
fully expire by 1998. As discussed previously, the Company expects its
maintenance expense to increase in 1997 due to escalations in the specified
rates per hour under the Company's maintenance agreement.
Aircraft costs increased $17.9 million, or 27%, in 1996 to $85.2 million from
$67.3 million in 1995. This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the second and fourth quarters of 1995 and the first
quarter of 1996, partially offset by the return of two DC10-30 aircraft to the
lessor in the third quarter of 1995.
Fuel expenses increased $2.6 million, or 16%, in 1996 to $19.3 million from
$16.7 million in 1995. This increase is due primarily to an increase in fuel
utilized in connection with its military operations and a slight increase in
price per gallon.
Promotions, sales and commissions increased $4.2 million in 1996 to $6.2
million from $2.0 million in 1995. This increase resulted primarily from
expenses incurred in connection with a customer contract and an increase in
teaming arrangement expenses associated with the larger fixed-award contract
received from the U.S. Air Force beginning October 1995.
27
<PAGE>
Depreciation and amortization increased $1.9 million, or 31%, in 1996 to $8.0
million from $6.1 million in 1995. This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft and
incremental DC10-30 aircraft described above.
General and administrative expenses increased $6.5 million, or 36%, in 1996 to
$24.7 million from $18.2 million in 1995. This increase was primarily due to
the hiring of additional administrative personnel necessary to support the
growth in the Company's core business and an increase in certain legal and
professional fees.
Discontinued Operations
World Airways ceased all scheduled operations as of October 27, 1996. As a
result, the Company's scheduled service operations were reflected as
discontinued operations as of June 30, 1996, and prior period results have been
restated to reflect scheduled service operations as discontinued operations.
Loss from discontinued operations (net of income tax effect) approximated $11.7
million for the year ended December 31, 1996. In addition, an estimated loss on
disposal of $21.0 million (net of income tax effect) which was recorded as of
June 30, 1996, included the following: $13.6 million for estimated operating
losses during the phase-out period; a $2.6 million estimated loss to be incurred
in connection with sub-leasing DC-10 aircraft which will not be utilized in the
Company's operations subsequent to the phase-out of scheduled service
operations; a $2.3 million write-off of related leasehold improvements; and $2.0
million for passenger reprotection expenses. The Company incurred approximately
$18.9 million of these costs during the six months ended December 31, 1996 and
the Company believes that its remaining accrual for estimated losses on disposal
will be adequate to meet the remaining costs to be incurred during the phase-out
period.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total block hours increased 10,885 hours, or 41%, to 37,342 hours in 1995 from
26,457 hours in 1994, with an average of 10.3 available aircraft per day in 1995
compared to 8.2 in 1994. Average daily utilization (block hours flown per day
per aircraft) increased to 9.9 hours in 1995 from 8.8 hours in 1994. In 1995,
the Company continued to obtain a higher percentage of its revenues under wet
lease contracts as opposed to full service contracts. In 1995, wet lease
contracts accounted for 70% of total block hours, up from 63% in 1994. Total
operating revenues increased $78.8 million, or 44%, to $259.5 million in 1995
from $180.7 million in 1994.
Continuing Operations
Block hours from continuing operations increased 9,171 hours, or 35%, to
35,628 hours in 1995 from 26,457 hours in 1994.
Operating Revenues. Revenues from flight operations increased $58.7 million,
or 34%, to $232.6 million in 1995 from $173.9 million in 1994. This increase
was primarily attributable to a $58.4 million increase in revenues generated
from the new multi-year contracts with Malaysian Airlines. Average daily
utilization for these contracts was 11.2 hours in 1995. In addition, the
Company realized an increase in revenues associated with services to certain
international carriers. Partially offsetting these increases was a decrease in
revenues associated with the 1995 summer charter programs to Europe.
Revenues from flight operations subcontracted to other carriers increased $3.2
million for 1995 to $8.6 million from $5.4 million in 1994. This increase
resulted primarily from the Company's need to subcontract certain flights to
other carriers due to peak airlift requirements for the 1995 Hadj pilgrimage.
This increase was partially offset by the subservice of certain contracts in the
fourth quarter of 1994 primarily to make aircraft capacity available for the
commencement of operations under the Company's multi-year contracts with
Malaysian Airlines.
Operating Expenses. Total operating expenses increased $40.6 million, or 22%,
in 1995 to $226.5 million from $185.9 million in 1994.
Flight operations expenses increased $7.4 million, or 13%, in 1995 to $65.2
million from $57.8 million in 1994. This increase resulted primarily from the
following: an increase in block hours flown; higher cockpit crew levels
associated with the integration of additional aircraft into the fleet in 1995;
and an increase in accruals under the
28
<PAGE>
Company's profit sharing plans for its crewmembers during 1995. These factors
were partially offset by a shift from full service to basic contracts.
Maintenance expenses increased $15.6 million, or 60%, in 1995 to $41.8 million
from $26.2 million in 1994. This increase resulted primarily from a non-
recurring 1994 reversal of $4.2 million of excess reserves associated with the
expiration of three DC10-30 aircraft leases and the increase in block hours
flown in 1995 and lower costs associated with reduced maintenance requirements
of new MD-11 aircraft and the guarantees and warranties received from the engine
and aircraft manufacturers of the MD-11 aircraft and related engines, which
guaranties and warranties began to expire in 1995.
Aircraft costs increased $13.4 million, or 25%, in 1995 to $67.3 million from
$53.9 million in 1994. This increase was primarily due to the lease of two
additional MD-11 convertible aircraft in the first quarter of 1995 and the
short-term lease of incremental DC10-30 aircraft which began in the fourth
quarter of 1994 and second quarter of 1995, partially offset by the return of
three lower-cost DC10-30 aircraft to the lessor in the third quarter of 1994.
Fuel expenses decreased $0.2 million in 1995 to $16.7 million from $16.9
million in 1994. This decrease is due primarily to a shift from full service to
wet leases in 1995 under which the Company is not responsible for fuel,
partially offset by an increase in fuel uplifted for military and scheduled
service operations.
Promotions, sales and other related expenses increased $0.9 million in 1995 to
$2.0 million from $1.1 million in 1994. This increase resulted primarily from
an increase in joint venture expenses associated with the larger fixed-award
contract received from the U.S. Air Force beginning October 1995.
Depreciation and amortization increased $2.1 million, or 53%, in 1995 to $6.1
million from $4.0 million in 1994. This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft and
incremental DC10-30 aircraft described above as well as the amortization of
certain MD-11 aircraft integration costs and other deferred costs.
General and administrative expenses decreased $2.3 million, or 11%, in 1995 to
$18.2 million from $20.5 million in 1994. This decrease was primarily due to a
decrease in certain legal and professional fees, partially offset by the hiring
of additional marketing personnel.
Other Income (Expense). Other expenses decreased $2.6 million, or 68%, in
1995 from 1994 primarily due to a $0.7 million loss on the sale of a DC10 engine
by the Company in 1994. In addition, the Company recognized a $0.8 million gain
in 1995 resulting from a settlement with the lessor relating to the return of
two DC10 aircraft in 1993.
Liquidity and Capital Resources
The Company is highly leveraged. The Company incurred substantial debt and
lease commitments during the past three years in connection with its acquisition
of MD-11 aircraft and related spare parts. In addition, the Company has
significant future long-term obligations under aircraft lease obligations
relating to its aircraft.
As of June 30, 1997, the Company had outstanding $29.1 million in long-term
debt and capital leases, with expected debt service and capital lease expense of
$5.9 million for the six months ending December 31, 1997 and $13.3 million for
the year ending December 31, 1998. As of June 30, 1997, after giving effect to
the Private Placement, the Company's total indebtedness would have been
approximately $86.8 million, $36.8 million would have been Senior Indebtedness,
including $6.7 million attributable to capital lease obligations, no
indebtedness of the Company would have ranked pari passu with the Debentures,
and no indebtedness would have been Subordinated Indebtedness. In August 1997,
the Company completed the Private Placement. The Debentures are unsecured
obligations, convertible into shares of Common Stock, and subordinated to all
present and future senior indebtedness of the Company. The Company intends to
use the net proceeds from the Private Placement to repurchase approximately 4.0
million shares of Common Stock, repay certain indebtedness, increase working
capital and for general corporate purposes. See "Prospectus Summary--The Private
Placement." Failure by the Company to
29
<PAGE>
effect the repurchase of at least 4.0 million shares of Common Stock within 150
days after the original issue of the Debentures constitutes a Repurchase Event
whereby each holder of the Debentures would have the right, at the holder's
option, to require the Company to repurchase such holder's Debentures at 100% of
their principal amount, plus accrued interest. The ability of the Company to
repurchase the Debentures upon a Repurchase Event will be dependent on the
Company's ability to raise sufficient funds through additional borrowings or
equity sales and compliance with applicable securities laws. Accordingly, there
can be no assurance that the Company will be able to repurchase the Debentures
upon a Repurchase Event.
In connection with the Private Placement, the Company and WorldCorp entered
into an agreement for the purchase by World Airways of up to 4.0 million shares
of Common Stock owned by WorldCorp at a purchase price per share of $7.65. On
September 18, 1997, the Company purchased 3,227,000 shares of Common Stock from
WorldCorp for approximately $24.7 million in cash in accordance with the
Agreement. Discussions with MHS following the Private Placement could have an
impact on the number of shares of Common Stock ultimately repurchased from
WorldCorp. MHS has certain rights under the Shareholders Agreement. This
agreement includes a provision that provides that if WorldCorp were to dispose
of its holdings in the Company with the result that WorldCorp's ownership
interest in the Company falls below 51% of the outstanding shares of Common
Stock, then MHS may either sell its shares to a third party or require WorldCorp
to sell a pro rata number of shares held by MHS to the party purchasing
WorldCorp's shares. As a result of the repurchase of 3,227,000 shares of Common
Stock by World Airways from WorldCorp, MHS has the right to sell 773,000 shares
of Common Stock. WorldCorp, MHS and the Company engaged in preliminary
discussions as to the potential repurchase of Common Stock owned by MHS. The
Company anticipates that these discussions will continue, although there can be
no assurance that these discussions will result in any stock repurchases from
MHS. Should MHS not exercise its right to sell the 773,000 shares of Common
Stock, the Company currently intends to repurchase the shares from WorldCorp.
The Company's ability to make interest payments on the Debentures will be
dependent on the Company's future operating performance, which is itself
dependent on a number of factors, many of which are beyond the Company's
control. The Company's ability to repay the Debentures at maturity will depend
upon these same factors and the ability of the Company to raise additional
funds.
The degree to which World Airways is leveraged could have important
consequences to holders of the Debentures and upon conversion, holders of the
Shares, including the following: (i) World Airways' ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or other purposes may be limited; (ii) a substantial portion of the Company's
cash flow from operations must be dedicated to the payment of principal and
interest on its indebtedness; (iii) World Airways' degree of leverage and
related debt service obligations, as well as its obligations under operating
leases for aircraft, may make it more vulnerable than some of its competitors in
a prolonged economic downturn; (iv) World Airways' ability to meet its payment
obligations under existing and future indebtedness, capital leases and operating
leases may be limited; and (v) World Airways' financial position may restrict
its ability to pursue new business opportunities and limit its flexibility in
responding to changing business conditions.
World Airways' cash and cash equivalents at June 30, 1997 and December 31,
1996 were $8.3 million and $7.0 million, respectively. As is common in the
airline industry, World Airways operates with a working capital
deficit. At June 30, 1997, World Airways' current assets were $33.5 million and
current liabilities were $65.3 million. World Airways has substantial long-term
aircraft lease obligations with respect to its current aircraft fleet. Although
there can be no assurances, World Airways believes that its existing contracts
and additional business which it expects to obtain in the near term, along with
its existing cash and financing arrangements and net proceeds from the Private
Placement will be sufficient to allow World Airways to meet its cash
requirements related to debt service and the operating and capital requirements
for its continuing operations for the next 12 months.
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In 1996, World Airways instituted a program to purchase up to one million
shares of its publicly-traded Common Stock pursuant to open market transactions.
As of June 30, 1997, World Airways had purchased 770,000 shares of Common Stock
at an aggregate cost of approximately $7.8 million pursuant to such program.
WorldCorp and World Airways have entered into an agreement for the repurchase of
Common Stock owned by WorldCorp and, pursuant to such agreement, the Company
repurchased 3,227,000 shares of Common Stock from WorldCorp on September 18,
1997. See "Prospectus Summary--The Private Placement."
In the event that World Airways enters into leases for additional aircraft,
World Airways will need to make capital expenditures for additional spare
engines and parts. No assurances can be given, however, that World Airways will
obtain all of the financing required for such capital expenditures.
Cash Flows from Operating Activities
Operating activities provided $22.7 million in cash for the six months ended
June 30, 1997 compared to using $1.0 million in the comparable period in 1996.
This increase in cash in 1997 resulted primarily from an increase in net
earnings and a decrease in accounts receivable, partially offset by a decrease
in accounts payable, accrued expenses, and other liabilities.
Operating activities used $1.5 million in cash for the year ended December 31,
1996 compared to providing $18.7 million of cash in the comparable period in
1995. This decrease in cash in 1996 resulted primarily from an increase in
losses from discontinued operations and the loss on disposal of discontinued
operations, an increase in accounts receivable, and a decrease in unearned
revenue, partially offset by an increase in accounts payable, accrued expenses,
and other liabilities.
Cash Flows from Investing Activities
Investing activities used $4.2 million in cash for the six months ended June
30, 1997, compared to $4.5 million in the comparable period in 1996. In 1997,
cash was used primarily for the purchase of rotable spare parts, a spare engine,
and engine upgrades required for two MD-11 aircraft.
Investing activities used $9.1 million in cash for the year ended December 31,
1996, compared to $22.5 million in the comparable period in 1995. In 1996, cash
was used primarily for the purchase of rotable spare parts required for the
integration of two MD-11 aircraft and incremental DC-10 aircraft and leasehold
improvements required on one of the DC-10 aircraft obtained in late 1995.
Cash Flows from Financing Activities
Financing activities used $17.3 million in cash for the six months ended June
30, 1997 compared to using $0.9 million in the comparable period in 1996. This
decrease in cash resulted primarily from an increase in repayments of the
Company's net borrowings and the purchase of shares of the Company's common
stock for an aggregate cost of $0.5 million in 1997.
Financing activities used $7.6 million in cash for the year ended December 31,
1996 compared to providing $25.0 million in the comparable period in 1995. This
decrease in cash resulted primarily from the purchase of shares of Common Stock
for an aggregate cost of $7.4 million in 1996, as compared to proceeds of $22.8
million from the sale of common stock in 1995.
Capital Commitments
In October 1992 and January 1993, the Company signed a series of agreements to
lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
the Company with increasing rent costs. As of March 1995, the Company had taken
delivery of all seven aircraft, consisting of four passenger MD-11 aircraft, one
freighter MD-11, and two passenger/cargo convertible MD-11s. As part of the
lease agreements, the Company was assigned purchase options for four additional
MD-11 aircraft. In 1992, the Company made non-refundable deposits of $1.2
million toward the option aircraft and the
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purchase options were terminated. In March 1996, the Company signed an agreement
with the manufacturer to lease two MD-11ER aircraft. Under the agreement, the
Company leased each aircraft for a term of 24 years with an option to return the
aircraft after a seven-year period with certain fixed termination fees. As part
of the agreement, the above-mentioned deposits were applied towards the deposits
required on these two aircraft. In addition, the Company agreed to assume an
existing lease of two additional MD-11 freighter aircraft for 20 years,
beginning in 1999, in the event that the existing lessee terminates its lease
with the manufacturer at that time. As of June 30, 1997, annual minimum payments
required under the Company's aircraft and lease obligations totaled $43.6
million for the remainder of 1997 and $84.9 million for 1998.
As of June 30, 1997, World Airways has long-term leases for four DC10-30
aircraft. Three of the leases expire in 1998 and one expires in 2003.
In August 1995, the Company amended its aircraft spare parts facility under
the Credit Agreement to provide for a variable rate borrowing. Approximately
$2.5 million of this facility was used to pay off the previously outstanding
balance of the spare parts loan facility and $0.8 million was used to purchase
additional spare parts for MD-11s required during the remainder of 1995. The
balance of this loan facility was used to increase cash balances which were
drawn down during the first half of 1995 to purchase MD-11 spare parts.
In September 1995, the Company agreed to purchase a spare engine which was
delivered in March 1996. The engine cost approximately $8.0 million. The
Company entered into an agreement with the engine's manufacturer to finance 80%
of the purchase price over a seven-year term. The Company made payments of $1.2
million and $0.4 million towards this purchase in September 1995 and January
1996, respectively.
As discussed above, the Company signed an agreement for the lease of two MD-
11ER aircraft beginning in the first quarter of 1996 to provide additional
capacity for growth opportunities. As part of the agreement for the MD-11
aircraft, the Company received spare parts financing from the lessor of $9.0
million of which $3.0 million was made available with the delivery of each
aircraft, and the remaining $3.0 million was made available in December 1996.
As of June 30, 1997, approximately $7.4 million had been received. In January
1996, the Company agreed to purchase an additional engine and received a
commitment from the engine manufacturer to finance 85% of its purchase price
over a seven-year term with an interest rate to be fixed at the time of
delivery. In June 1997, the Company took delivery of the engine and signed a
note for $6.3 million. The note bears interest at a rate of 8.18% and is
payable over an 84-month period at approximately $48,000 per month with the
balance of $2.2 million due on June 18, 2004.
The Company anticipates that its total capital expenditures in 1997, which
includes the spare engine, will approximate $13.0 million of which the Company
will receive approximately $6.3 million in financing. The Company expects that
the remaining balance will be funded from its operating cash flow and proceeds
from the Private Placement.
As of June 30, 1997, the Company held approximately $3.6 million (at book
value) of aircraft spare parts currently available for sale.
Income and Other Taxes
As of December 31, 1996, World Airways had NOLs for federal income tax
purposes of $103.8 million ($29.0 million of which is subject to a $6.9 million
annual limitation as a result of an ownership change of World Airways for tax
purposes in 1991). These NOLs, if not utilized to offset taxable income in
future periods, would expire between 1998 and 2011. Use of World Airways' NOLs
in future years could be further limited if an ownership change were to occur in
the future. World Airways believes that neither the sale of common stock in its
initial public offering nor the purchase of 3,227,000 shares of its Common Stock
from WorldCorp (see "Prospectus Summary--The Private Placement") caused an
ownership change. However, the application of the Internal Revenue Code in this
area is subject to interpretation by the Internal Revenue Service. The NOLs are
subject to examination by the Internal Revenue Service and, thus, are subject to
adjustment or disallowance resulting from any such IRS examination. In
addition, conversion of the Debentures or future transactions in the Common
Stock (see "Prospectus
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Summary--The Private Placement") or the common stock of the Company's
stockholders may cause an ownership change, which could result in a substantial
reduction in the annual limitation in the use of the NOLs and the loss of a
substantial portion of the NOLs available to the Company. Accordingly,
prospective purchasers of the Debentures should not assume the availability of
any portion of World Airways' currently existing or future NOLs, if any, in
making their investment decisions.
Legal and Administrative Proceedings
World Airways has periodically received correspondence from the FAA with
respect to minor noncompliance matters. In November 1996, as the FAA increased
its scrutiny of U.S. airlines, World Airways was assessed a preliminary fine of
$810,000 in connection with certain security violations by ground handling crews
contracted by World Airways for services at foreign airport locations. Under 49
U.S.C. 46301, any violation of pertinent provisions of 49 U.S.C. 40101 or
related rules is subject to a civil penalty for each violation. Upon review of
the evidence or facts and circumstances relating to the violation, the statute
allows for the compromise of proposed civil penalties. The penalties were
proposed by the FAA in connection with recent inspections at foreign airport
facilities and relate primarily to ground handling services provided by World
Airways' customers in connection with their operations; specifically, the
inspection procedures of its aircraft, passengers and associated cargo. In each
of these instances, World Airways was in compliance with international
regulations, but not the more stringent U.S. requirements, despite the fact
that the flights in question did not originate or terminate in the United
States. World Airways has taken steps to comply with the U.S. requirements. In
September 1997 the Company entered into a consent order and settlement agreement
with the FAA in connection with the above-mentioned alleged violations.
Pursuant to this Agreement, the Company is liable for a sum of $610,000, of
which $405,000 was paid in September. The remaining $205,000 was suspended and
will be forgiven if the Company complies with the provisisons of the settlement
agreement, including not incurring any security violations during the one-year
period following the execution of the settlement agreement. While World Airways
believes it is currently in compliance in all material respects with all
appropriate standards and has all required licenses and authorities, any
material non-compliance by World Airways therewith or the revocation or
suspension of licenses or authorities could have a material adverse effect on
the financial condition or results of operations of World Airways.
World Airways and WorldCorp (the "World Defendants") were defendants in
litigation brought by the Committee of Unsecured Creditors of Washington
Bancorporation in August 1992, captioned Washington Bancorporation v. Boster
et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the "Boster Litigation").
Under a settlement agreement, the plaintiff agreed to dismiss with prejudice the
Boster Litigation against all defendants, including the World Defendants, with
each party to bear its own costs. Under the settlement agreement, the World
Defendants do not have any further liability in the Boster Litigation.
In connection with the discontinuance of World Airways' scheduled service
operations, World Airways is subject to claims by various third parties and may
be subject to further claims in the future. One claim which had been filed in
connection with World Airways' discontinuance of scheduled service to South
Africa, and which sought approximately $37.8 million in compensatory and
punitive damages, has been settled by the parties for approximately $0.7
million.
In addition, World Airways is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by World
Airways to be likely to have a material adverse effect on the financial
condition of World Airways.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 ("FAS #128") Earnings per
Share, and SFAS No. 129 ("FAS #129") Disclosure of Information About Capital
Structure. FAS #128 was issued to simplify the computation of earnings per
share and to make the U.S. standard more compatible with the standards of other
countries and that of the International Accounting Standards Committee. FAS
#128 replaces primary and fully diluted earnings per share with basic
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earnings and diluted earnings per share. FAS #129 will change some of the
required disclosures about capital structure. It is not expected that these
statements will have a material effect on the Company's financial statements in
the future. The SFASs are effective for the year ending December 31, 1997.
Inflation
The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.
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BUSINESS
General
World Airways is a global provider of long-range passenger and cargo air
transportation outsourcing services to major international airlines under fixed
rate, multi-year contracts. World Airways' passenger and freight operations
currently employ 12 wide-body aircraft which are operated under contracts
primarily with Pacific Rim airlines. These contracts generally require World
Airways to supply aircraft, crew, maintenance and insurance ("ACMI" or "wet
lease"), while World Airways' customers are responsible for a large portion of
the other operating expenses, including fuel. World Airways' airline customers
have determined that outsourcing a portion of their wide-body passenger and
cargo requirements can be less expensive, and offers greater operational and
financial flexibility, than purchasing new aircraft and additional spare parts
required for such aircraft.
World Airways also leads a contractor teaming arrangement that is one of the
largest suppliers of commercial airlift services to the USAF.
World Airways restructured its business in July 1996 to focus on ACMI contract
services, taking a one-time charge of $21.0 million as of June 30, 1996. As a
result, the Company terminated all scheduled services on October 27, 1996.
World Airways' block hours flown from continuing operations increased
approximately 10% in the first six months of 1997 over the first six months of
1996 and increased approximately 23% in the year ended December 31, 1996 over
the year ended December 31, 1995. In addition, the Company had operating
revenues of approximately $160.7 million and $151.9 million for the first six
months of 1997 and 1996, respectively, and operating revenues of approximately
$309.6 million and $242.4 million for 1996 and 1995, respectively. Due to
accelerated maintenance on two MD-11s in June 1997, the Company's block hours
flown from continuing operations increased by 1% in the second quarter of 1997
as compared to the same period of the prior year. These aircraft are now
available for operation and are substantially booked for the latter part of
1997. See "Risk Factors--Aircraft Fleet."
The Company operates a fleet of eight MD-11 and four DC10-30 wide-body
aircraft. The average age of the MD-11 fleet is 3.2 years. World Airways'
overall fleet age averages 8.1 years. When appropriate, the Company will add to
this fleet to accommodate the needs of new and existing customers. The Company
believes that aircraft are available at commercially reasonable rates for this
purpose.
World Airways' operating philosophy is to build on its existing ACMI
relationships to achieve a strong platform for future growth. World Airways
concentrates on ACMI contracts which shift yield, load factor and certain cost
risks to the customer. The customer bears the risk of filling the aircraft with
passengers or cargo and assumes a large portion of the operating expenses,
including fuel. World Airways has elected to emphasize its ACMI business
because the Company perceives a number of opportunities created by a growing
global economy, particularly growth in second and third world economies where
the demand for airlift exceeds capacity. World Airways attempts to maximize
profitability by combining its multi-year ACMI contracts with short term,
higher-yielding ACMI agreements which meet the peak seasonal requirements of its
customers. The Company responds opportunistically to rapidly changing market
conditions by maintaining a flexible fleet of aircraft that can be deployed in a
variety of configurations.
While the Company's aircraft currently serve predominantly passenger
customers, World Airways substantially increases its potential customer base by
being able to serve both passenger and cargo customers. The Company flies
passenger, cargo and passenger/cargo convertible aircraft that it believes
permit it to react opportunistically to changing demand. For example, the
Company uses convertible aircraft in a passenger configuration to meet peak
seasonal flying for Malaysian Airlines and Garuda during the spring of each
year. The Company can subsequently use the same convertible aircraft in a cargo
configuration for a customer, such as UPS, later in the same year.
World Airways focuses its marketing efforts on the Pacific Rim, Europe and
more recently South America, where rapid economic development drives demand for
the Company's services. The Company believes that its modern fleet of long-
range medium-density wide-body MD-11 and DC10-30 aircraft are ideally suited to
these less
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dense international routes and provide superior economics as compared to other
popular aircraft, such as the Boeing 747 which has excess capacity. World
Airways has operated in the Pacific Rim almost since its inception in 1948, more
recently has penetrated the South American market, and believes that it has
developed the ability to serve these markets well.
World Airways has been providing safe, reliable ACMI services for almost 50
years. World Airways has flown for the USAF since 1956, for Malaysian Airlines
since 1981 and for Garuda since 1973. On July 3, 1997, World Airways entered
into a multi-aircraft agreement with VASP.
Business Strategy
World Airways' strategy for increasing its revenues and profits focuses on its
growing core business of providing ACMI contract services to international
airlines by:
. Expanding Core Carrier Relationships. Over the years, the Company has
developed long-term relationships with a number of major international
airlines and with the USAF. The Company's growth strategy is based upon
providing high quality service to these customers, thereby maintaining and
expanding the amount of business obtained through long-term contracts.
. Marketing ACMI Services, Particularly in the Pacific Rim and South America.
The Company's new management team is committed to increasing the Company's
marketing efforts, including adding marketing personnel and has undertaken
a targeted marketing effort worldwide, particularly the Pacific Rim and
South America. The Company has recently entered into a Memorandum of
Agreement with VASP. See "Business--Significant Customer Relationships."
. Entering into New Strategic Alliances. The Company is seeking to enter new
strategic alliances to further the growth of its ACMI business. The Company
believes that in the future there will likely be opportunities for
consolidation within the ACMI business through acquisitions and alliances.
The Company from time to time has engaged in discussions concerning
possible acquisitions, strategic alliances, investments or joint ventures.
The Company currently has no present understandings, commitments or
agreements with respect to any such transaction and there can be no
assurance that any such transaction will occur. The Company expects that it
will continue to pursue such transactions aggressively to further the
growth of its ACMI business.
Management believes that, as a result of July 1996 restructuring of its
operations to concentrate on its ACMI contract services, and because it is a
U.S. certificated "flag" carrier, the Company is well-positioned to benefit
from the growth in the global air passenger and air cargo markets, particularly
in the Pacific Rim region and South America, where the Company has concentrated
a significant amount of its resources. The Company believes that anticipated
continued growth in the demand for passenger and cargo air transportation in
Southeast Asia, the Pacific Rim and South America, combined with the need of the
national airlines of these countries to manage their own rapid expansion by
utilizing the Company's operating experience and aircraft, should provide the
Company with the opportunity to expand its outsourcing services and is
indicative of the demand for airlift services in the developing world in
general. The Company also believes that the U.S. military will continue to
outsource a substantial amount of its commercial airlift requirements in order
to meet its need for mobility.
Competitive Advantages
The Company believes that it possesses several key competitive advantages that
allow it to offer efficient, reliable and cost-effective outsourcing services to
its customers on a profitable basis:
. Concentration in Two of the World's Fastest Growing Regions. The Company
has found a profitable niche providing highly reliable long-range medium-
density airlift capacity to rapidly growing national airlines in Southeast
Asia. The Company has also recently begun to penetrate the fast-growing
South American market. The Pacific Rim is the fastest growing market in the
world for both air passenger and air cargo services.
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Over the past two years, the Pacific Rim (excluding Japan) GDP growth has
averaged approximately 7%, while worldwide GDP growth has averaged only
approximately 2.5%. In the Pacific Rim market, air traffic generally grows
at close to two times the underlying GDP growth rate. The airlines of the
Pacific Rim and South America principally desire access to the Company's 49
years of operating experience, modern fleet, and U.S. route authorities.
. Long-term Customer Contracts Which Stabilize Revenue and Minimize Cost
Risks. The Company has entered into several long-term contracts which help
to stabilize the Company's revenue base and minimize the Company's cost
risks. The Company's contractual arrangements with its customers provide
for its customers to guarantee monthly minimum aircraft utilization levels
at fixed hourly rates and are in force for periods of one to five years,
subject to certain termination provisions. These contracts typically are
ACMI arrangements in which the Company's customers bear a substantial
portion of the other operating expenses, including the costs of fuel and
fuel servicing, marketing associated with obtaining passengers or cargo,
airport passenger handling and ticketing, aircraft ground handling, and
aircraft push-back and de-icing services. The Company believes that
customers prefer the ACMI arrangements because they pay a simple per-hour
fee for a complete service package that includes everything required to
complete the flight, except passengers, fuel and flight attendants.
Consequently, few additional assets or investments are required by the
customer. The customer is able to increase revenues without assuming the
asset risk or related costs of the aircraft. The Company prefers the ACMI
arrangement because, unlike a full-service contract, the customer bears the
load factor and yield risk; the Company is essentially paid to provide and
operate the aircraft. In addition, with long-term ACMI contracts, the
Company's profit margins are less volatile than in scheduled markets, and
revenues and cash flows are more predictable. The Company currently has
five ACMI contracts with at least one aircraft dedicated to each contract,
and the Company is currently in preliminary discussions with respect to
other possible ACMI contracts.
. Attractive Fleet Characteristics. The Company operates a fleet of eight
MD-11 and four DC10-30 wide-body aircraft in a variety of configurations
which provide significant marketing advantages to the Company. Both the MD-
11 and the DC10-30 aircraft are long-range, medium density, wide-body
aircraft. The Company's fleet is designed to meet the requirements of its
target markets and customers as well as to provide the Company with the
flexibility to redeploy its aircraft to meet worldwide passenger or cargo
demand. The Company's fleet has three principal advantages: young age, low
cost and flexibility. The average age of the Company's MD-11 fleet is 3.2
years and the average age of its overall fleet is 8.1 years. Typically,
national carriers served by the Company demand newer aircraft with medium-
density long-haul capabilities such as the Company's MD-11 fleet. These
younger aircraft have higher fuel efficiencies and lower maintenance costs.
In addition to the operating benefits, newer aircraft are perceived by the
public to be safer. Many of the routes served by the Company's customers
cannot be served efficiently by larger wide-body aircraft such as the
Boeing 747 because such aircraft provide too much capacity relative to
existing demand. The Company's older DC10-30 fleet meets the needs of
customers who seek an aircraft with characteristics similar to those of the
MD-11, but desire a low-cost alternative for their passenger or cargo
needs. The Company believes that it acquired the majority of its MD-11's on
favorable lease terms due to the airline manufacturing recession of 1993.
These leases are renewable at the Company's option for 10 one-year
extensions in years six through 15 of the lease terms. However, failure to
renew such contracts would result in penalties.
Pursuant to its strategy of maintaining a flexible fleet, in March 1996, World
Airways entered into two leases with McDonnell Douglas for a new extended-range
model of the McDonnell Douglas MD-11. World Airways has leased each MD-11ER
aircraft for a term of 24 years with an option to return the aircraft after a
seven-year period with certain fixed termination fees. The MD-11ER, is capable
of flying nonstop between such cities as Zurich and Santiago, New York and
Johannesburg, and Los Angeles and Shanghai. The aircraft's increased range is
due to a combination of engineering and aerodynamic improvements and
innovations.
Significant Customer Relationships
Over the years, the Company has developed long-term relationships with a
number of major international airlines and with the USAF. The Company's growth
strategy is based upon providing high quality service to these
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customers, thereby maintaining and expanding the amount of business being done
through long-term contracts. These contracts have increased the year-round usage
of the Company's aircraft fleet, reduced the seasonality of the Company's
business and contributed to its recently improved operating performance.
Malaysian Airlines. World Airways has provided wet lease services to
Malaysian Airlines since 1981, providing wet lease services for Malaysian
Airlines' scheduled passenger and cargo operations as well as transporting
passengers for the annual Hadj pilgrimage. MHS, which owned 24.9% of the
Company as of September 30, 1997, also owns 29.1% of Malaysian Airlines.
Malaysian Airlines accounted for 27% and 34% of World Airways' revenues and 30%
and 42% of total block hours for the first six months of 1997 and for the year
ended December 31, 1996, respectively. Certain of the Company's previous long-
term contracts with Malaysian Airlines have recently expired.
In 1997, the Company entered into a new 32-month agreement for year-round
operations (including the Hadj) with Malaysian Airlines whereby the Company will
provide two passenger aircraft with cockpit crews, maintenance and insurance to
Malaysian Airlines' newly-formed charter division through May 1999. The Company
provided three aircraft for 1997 Hadj operations.
The Company has a long-term contract to operate three MD-11 cargo aircraft for
Malaysian Airlines. However, beginning in July 1996, and as mutually agreed by
the parties, World Airways redeployed two cargo aircraft, which had been
operating under these contracts, into the Philippine Airlines contract. The
Company and Malaysian Airlines are currently discussing the future redeployment
of these aircraft back into Malaysian Airlines' operations in order to meet the
contracts' original obligations. The Company can provide no assurances,
however, that the Company will, in fact, be able to do so. Revenues associated
with these contractual obligations are included in the Company's backlog amount
included herein.
Garuda. The Company has flown for Garuda periodically since 1973 and yearly
since 1988. Since 1988, the Company has been one of the largest providers of
passenger services to Indonesia for the Hadj pilgrimage. The Indonesian Hadj
pilgrimage is the world's largest due to the size of Indonesia's Islamic
population. In 1997, approximately 40,000 of the 200,000 Indonesians who
traveled to Jeddah for the Hadj pilgrimage flew on the Company's aircraft. The
Company is currently negotiating an agreement with Garuda to operate six
aircraft during the 1998 pilgrimage.
Philippine Airlines. As of June 30, 1997, World Airways operated four MD-11
passenger aircraft for Philippine Airlines under an agreement with high minimum
monthly utilization levels. Philippine Airlines, however, is experiencing
financial difficulties and since March 1997 had been making monthly lease
payments to the Company on an installment basis according to a payment plan
agreed to by the Company and Philippine Airlines at the beginning of each month.
On July 11, 1997, World Airways agreed to shift two MD-11s currently operating
for Philippine Airlines to other customers of the Company. As of the date
hereof, Philippine Airlines is in compliance with its agreements with the
Company and has reconfirmed its commitment to operate the remaining two MD-11s
currently in its fleet until February 1998. Failure by Philippine Airlines to
meet its aircraft lease obligations, if not offset by other business, would have
a material adverse effect on the financial condition, cash flows and results of
operations of the Company.
VASP. On July 3, 1997, World Airways entered a binding Memorandum of
Agreement with VASP for the lease of two MD-11 passenger aircraft for a six-
month term with a six-month renewal option. The Company is currently negotiating
the terms of this lease with VASP, with commencement anticipated for no earlier
than late 1997. The loss of this agreement, a renegotiation of its terms or a
substantial reduction of business for VASP, if not replaced, could have a
material adverse effect on the financial condition, cash flow and results of
operations of World Airways. The Company is also leasing a cargo plane to VASP
under an ACMI contract which began in June 1997.
USAF. The Company has provided international air transportation to the USAF
since 1956. The overall downsizing of the U.S. military places a premium on
the mobility of the U.S. armed forces. This is reflected in the stable size
over the past several years of the USAF's procurement of commercial airlift
services. Although the Company's agreements with the USAF provide for full
service contracts with certain minimum performance
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requirements, the Company has risks similar to an ACMI agreement because the
USAF agreements are cost-plus contracts at attractive rates. The Company leads a
contractor teaming arrangement that enjoyed a 44% market share of the USAF's
overall commercial airlift requirement for 1996-1997. During a period in which
the U.S. military downsized substantially, the Company's portion of the fixed
USAF award increased from $15.6 million for the government's 1992-93 fiscal
year, to $52.8 million for the government's 1996-97 fiscal year. While the prior
year's annual contract expired on September 30, 1997, the Company recently
received a $73.9 million fixed award for the government's 1997-98 fiscal year.
The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft such carriers make
available to CRAF. The Company utilizes such teaming arrangements to maximize
the value of potential awards. The current members of the Company's teaming
arrangement include Continental Airlines, Inc., Northwest Airlines, Inc.
("Northwest"), Evergreen International Airlines, Inc., Emery Worldwide Airlines,
Inc. and Miami Air International, Inc.
The Company's teaming arrangement purchases CRAF points from member carriers
to increase the size of the arrangements' fixed award and then allocates these
points among the team members. In addition, the Company pays commissions to
Northwest in exchange for allowing the Company to fly additional routes using
Northwest's points. The Company's operating revenues from CRAF are net of these
commissions. As a result of the Company's increasingly effective use of teaming
arrangements, the Company's fixed awards have generally grown in recent years
and the Company has one of the largest fixed awards for the U.S. Government's
1996-97 fiscal year.
USAF fixed awards provide predictable utilization of the Company's aircraft.
Under the 1996-97 contract, the Company operated one MD-11 from St. Louis and
Los Angeles to military bases in Japan and Korea for approximately 10 months.
The Company also operated one DC10-30 from Philadelphia to military bases in
Europe and the Middle East for a minimum of six months. These operating
schedules are specified in the contract award and serve as minimum utilization
commitments to the Company. The Company believes that predictable aircraft
utilization and attractive compensation levels, as well as international routes
well suited to the Company's wide-body, long-range fleet, have allowed the
Company to operate profitably under USAF contracts.
Aircraft Fleet
The Company's fleet strategy stresses market flexibility. Utilizing two
aircraft types provides the first measure of flexibility. Modern generation MD-
11 aircraft are well-suited for providing air transportation services to
airlines in the Pacific Rim as well as for serving the USAF's trans-Pacific
routes. Proven DC10-30 aircraft are well-suited for operating seasonal
programs, such as the annual Hadj pilgrimage, and for serving the USAF's routes
to Europe and the Middle East. Furthermore, the Company believes that it
achieves an additional measure of flexibility by operating four models of the
MD-11 and two models of the DC10-30.
A DC10-30 operator since 1978, the Company launched a reequipment program in
1993 in which it has acquired the eight MD-11 aircraft that now comprise its
core fleet. The MD-11 offers a number of important competitive advantages.
First, as a modern generation aircraft, the MD-11 meets the preference of
Pacific Rim carriers for the newest technology aircraft. The average age of the
Company's eight MD-11s is just 3.2 years. Second, the MD-11's long range allows
it to operate nonstop from Pacific Rim locations to destinations in North
America, Europe and Africa. The Company's two new MD-11ER aircraft, delivered in
1996, are capable of nonstop flights of over 15 hours. Third, although some
models of the Boeing 747 aircraft may provide lower unit costs per seat/mile or
ton/mile, the Company believes that the total operating costs of the MD-11 are
substantially lower than those of the Boeing 747 over routes that do not produce
enough traffic to efficiently utilize the Boeing 747's larger capacity. As a
result, the Company believes the MD-11 provides superior operating economics on
the Company's routes. Fourth, the MD-11 is produced in a wide range of models,
including passenger, extended-range passenger, freighter and convertible
freighter.
The Company has retained DC10-30 aircraft to supplement its MD-11 fleet.
Advantages of the DC10-30 include lower fixed cost, and therefore lower break-
even aircraft utilization levels (average block hours per day), as well as
shorter lease commitments. For these reasons, the acquisition of a DC10-30
involves less financial risk than
39
<PAGE>
the acquisition of an MD-11. In addition, the Company believes that the
Company's 19 years of experience with the DC10-30 has positioned the Company to
support this aircraft type. By supplementing the MD-11 fleet with DC10-30s, the
Company is able to target certain seasonal markets and USAF requirements that
cannot be profitably served with MD-11 aircraft.
The Company's strategy allows for fleet growth by acquiring additional MD-11s
or DC10-30s. The Company believes that continued growth in demand for services
to Pacific Rim and South American carriers would support additions to the MD-11
fleet and growth in demand for seasonal programs with lower aircraft utilization
levels would support additions to the DC10-30 fleet.
The Company returned one MD-11 to the lessor during the third quarter. The
MD-11 which was returned was the oldest, least modern MD-11 in the Company's
fleet and was one of the first MD-11s to be manufactured by McDonnell-Douglas.
Due to favorable market conditions, the Company believes that returning the
aircraft to its lessor provides World Airways with an opportunity to upgrade its
fleet at an appropriate time with a newer MD-11.
The following table summarizes the lease term, date of manufacture, engine
type, range and capacity of the Company's aircraft fleet as of June 30, 1997:
<TABLE>
<CAPTION>
Lease
Aircraft(1) Expiration Year of Engine
- ---------- (month/year)(2) Manufacture Type Range(3) Capacity(4)
--------------- ----------- -------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
MD-11ER ............................. 03/2020 1995 PW4462 6700 409 seats
MD-11ER ............................. 03/2020 1995 PW4462 6700 409 seats
MD-11CF ............................. 03/2010 1995 PW4462 6200 410 seats or 90 tons
MD-11CF ............................. 03/2010 1995 PW4462 6200 410 seats or 90 tons
MD-11F .............................. 03/2009 1994 PW4462 6200 95 tons
MD-11 ............................... 04/2008 1993 PW4462 6200 409 seats
MD-11 ............................... 03/2008 1993 PW4462 6200 409 seats
MD-11 ............................... 09/2008 1992 PW4462 6200 409 seats
DC10-30CF ........................... 01/2009 1979 CF6-50C2 4700 380 seats or 65 tons
DC10-30 ............................. 12/1998 1974 CF6-50C2 4700 350 seats
DC10-30 ............................. 09/1998 1988 CF6-50C2 4700 350 seats
DC10-30 ............................. 08/1998 1977 CF6-50C2 4700 350 seats
</TABLE>
- --------------
(1) "F" aircraft are freighters, "CF" aircraft are convertible freighters and
may operate in either passenger or freight configuration and aircraft with
no letter designation are passenger-only aircraft.
(2) Assumes exercise of all lease extensions.
(3) Range is in nautical miles based on operational take-off weight with full
fuel load and no runway constraints.
(4) Number of seats or tons of freight.
The Company currently leases from the manufacturer two MD-11ER aircraft for a
term of 24 years with an option to return the aircraft after a seven-year period
with certain fixed termination fees. In addition, the Company received spare
parts financing from the lessor of $9.0 million. As of June 30, 1997, $7.4
million had been received. Finally, the Company agreed to assume an existing
lease of two additional MD-11 freighter aircraft for 20 years, beginning in
1999, in the event that the other lessee terminates its lease with the
manufacturer at that time.
The Company believes that it acquired the majority of its MD-11's on favorable
lease terms due to the airline manufacturing recession of 1993. These leases
are renewable at the Company's option for 10 one-year extensions in years six
through 15 of the lease term. However, failure to renew such contracts would
result in penalties.
The Company currently leases three DC10-30 aircraft under short-term leases,
including two under leases with Malaysian Airlines and one DC10-30 aircraft
under a long-term lease. See "Certain Relationships and Transactions." The
long-term lease expires in January 2003, and includes renewal options allowing
the Company to extend the lease for up to six years. One short-term DC10-30
lease expires in August 1998, with the second expiring in September 1998 and the
third in December 1998. All of the DC10-30 leases contain standard default
provisions.
40
<PAGE>
The Company leases certain of its spare engines. Some of the Company's
rotable spare parts inventory and certain of the Company's spare engines are
subject to mortgages and other security interests granted in favor of the
Company's lenders. As of June 30, 1997, the Company owned $3.6 million of DC10-
30 aircraft spare parts which are classified as assets held for sale. These
spare parts were not required by the Company following its transition in 1993
and 1994 from a fleet of all DC10-30s to a fleet of predominantly MD-11
aircraft. The Company has consigned these parts to be sold by a third party
over a reasonable period of time with the objective of maximizing the proceeds
from such sale.
The Company has historically acquired and intends in the future to acquire
additional aircraft on short-term leases primarily to meet the peak seasonal
demand requirements of certain of its customers. There can be no assurance,
however, that reliable aircraft will be available for short-term leases to the
Company or, if such aircraft are available, that the Company will be able to
lease such aircraft on terms as favorable as its current leases. From time to
time the Company may subcontract with other carriers to meet requirements during
periods of peak demand.
Maintenance
The Company outsources its maintenance requirements where it believes that it
is uneconomical to keep such requirements within the Company. The Company's
maintenance and engineering group is responsible for maintaining the technical
condition of its aircraft fleet in compliance with the Company's FAA approved
maintenance program. Aircraft maintenance includes six basic activities:
maintenance control; line maintenance; scheduled airframe heavy maintenance;
power plant maintenance; material services; and quality assurance. These
activities are managed in the Company's headquarters near Washington Dulles
International Airport. The Company's maintenance control center coordinates
routine and non-routine maintenance operations worldwide on a 24-hour basis.
Engine maintenance accounts for most of the Company's annual maintenance
expenses. Typically, the hourly cost of engine maintenance increases as the
aircraft ages. The Company outsources major airframe maintenance and power
plant work to several suppliers. The Company has a 10-year contract expiring in
August 2003 with an option to extend for two years, to be exercised in March
1998, with United Technologies Corporation's Pratt & Whitney Group for all off-
wing maintenance on the PW 4462 engines that power its MD-11 aircraft. Under
this contract, the manufacturer agreed to provide such maintenance services at a
cost not to exceed a specified rate per engine flight hour during the term of
the contract. The Company's maintenance costs associated with the MD-11
aircraft and PW 4462 engines have been significantly reduced due in part to
manufacturer guarantees and warranties, which began to expire in 1995 and which
will fully expire by 1998. In addition, the specified rate per engine flight
hour is subject to annual escalation, increasing substantially in 1998.
Accordingly, while the Company believes that the terms of this agreement have
resulted in lower engine maintenance costs than it otherwise would incur, engine
maintenance costs will increase substantially during the last five years of the
agreement. The Company has begun to accrue these increased expenses in 1997 and
such expenses will continue to increase during the remainder of the term of the
contract as the Company's aircraft fleet ages.
The Company outsources major airframe maintenance to several suppliers. The
Company currently has agreements with SwissAir at its facilities in Zurich, KLM
at its facilities in Amsterdam, Lufthansa at its facilities in Frankfurt, and
TIMCO at its facilities in Greensboro. The Company deploys maintenance
representatives to supervise the work of certain of its maintenance contractors.
See "Certain Relationships and Transactions."
Each of the Company's aircraft carries spare parts and support kits, which
consist of approximately $1.5 to $3.5 million in parts and special equipment.
In addition, a highly-trained maintenance representative is on board all flights
to destinations where the Company does not have on-site maintenance facilities.
As described above, the Company has entered into agreements with contractors,
including other airlines, to provide certain facilities and services required
for its operations, including all of the Company's off-wing engine maintenance
and most airframe maintenance. The Company has also entered into agreements
with contractors to
41
<PAGE>
provide security, ground handling and personnel training. Although the Company
believes that there are many advantages to outsourcing these activities, the
failure of these contractors to provide essential services that are not
otherwise entirely within the control of the Company could have a material
adverse effect on the financial condition or results of the operations of the
Company.
Flight Operations
Worldwide flight operations (including aircraft dispatching and crew
scheduling) are planned and controlled by the Company's flight operations group
which is staffed on a 24-hour, seven days a week basis, operating out of the
Company's headquarters in Herndon, Virginia. Logistical support necessary for
extended operations outside the Company's fixed bases are coordinated through
the Company's global communications network.
Physical Facilities
The Company leases office space in Herndon, Virginia, located near Washington
Dulles International Airport, which houses its corporate headquarters and
substantially all of the administrative employees of the Company. In addition,
the Company leases additional office and warehouse space in Wilmington,
Delaware; Philadelphia, Pennsylvania; New York, New York; Los Angeles,
California; Kuala Lumpur, Malaysia; Yakota, Japan; and Frankfurt, Germany.
Additional small offices and maintenance material storage space are leased at
certain airports to provide administrative and maintenance support for
commercial and military contracts. The Company considers its present office
space and other facilities to be sufficient for its needs.
Aviation Fuel
The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products. The price
of fuel has not had a significant impact on the Company's operations in recent
years. The Company's exposure to fuel risk is limited because (i) under the
terms of the Company's wet lease, the customer is responsible for providing
fuel, (ii) under the terms of its full service contracts with the U.S.
Government, the Company is reimbursed for fuel price increases in excess of 5%
of the price agreed upon in the contract, subject to a 10% cap. However, a
substantial increase in the price or the unavailability of aviation fuel could
have a material adverse effect on the air transportation industry in general and
the financial condition or results of operations of the Company.
Security
The Company believes that its security program complies with the FAA and the
U.S. Department of Defense requirements and is tailored to the needs of the
markets it serves, including increased security necessary to serve certain
customers. See "--Regulation."
Insurance
The Company carries the types and amounts of insurance that are customary in
the airline industry, including coverage for public liability, passenger
liability, property damage, aircraft loss or damage, baggage and cargo liability
and workers' compensation. The Company maintains insurance coverage with major
insurance carriers with coverage of up to $115 million for damage per aircraft
and $1.0 billion of third party liability per occurrence. The Company has a low
claim experience with its insurers and believes that it enjoys a good reputation
with insurance providers. The "Hull War Risks" section of these policies
imposes a $445 million annual aggregate limit.
42
<PAGE>
Additionally, the Company carries deductible insurance which lowers its per
aircraft deductible from $1 million to $100,000 for any one claim, subject to an
aggregate of $4.0 million in claims per policy year. The Company also obtains
war risks insurance from the U.S. Government under Title XIII of the Aviation
Act ("Title XIII"). Title XIII generally authorizes the U.S. Government to issue
insurance with respect to aircraft engaged in operations deemed by the U.S.
Government to be necessary to carry out the foreign policy of the U.S. when such
insurance is either unavailable or prohibitively expensive when sought from
private insurers. Payment of valid claims pursuant to insurance issued under
Title XIII is made out of and subject to Congressional appropriations. As is
customary in the air transportation business, the Company does not maintain
business interruption insurance.
Employees
As of June 30, 1997, the Company had 946 full-time employees, classified as
follows:
<TABLE>
<CAPTION> Number of
Full-Time
Classification Employees
-------------- --------------------
<S> <C>
Senior Management ..................................................... 10
Administrative and Operations ......................................... 313
Cockpit Crew (including pilots) ....................................... 326
Flight Attendants ..................................................... 297
------------------
Total Employees .................................................... 946
==================
</TABLE>
The Company's cockpit crew members are highly trained individuals with
significant international flight experience. The Company has 56 cockpit crew
members employed by the Company for over 20 years.
The Company's cockpit crew members, who are represented by the Teamsters, are
subject to a four-year collective bargaining agreement expiring in June 1998.
The Company's flight attendants, who are also represented by the Teamsters, are
subject to a four-year collective bargaining agreement that will expire in
August 2000. The Company's flight attendants challenged the use of foreign
flight attendant crews on the Company's flights for Malaysian Airlines and
Garuda Indonesia. The Company is contractually obligated to permit its
Southeast Asian customers to deploy their own flight attendants. While the
arbitrator in this matter recently denied the union's request for back pay to
affected flight attendants for flying relating to the 1994 Hadj, the arbitrator
concluded that the Company's contract with its flight attendants requires the
Company to first actively seek profitable business opportunities that require
using the Company's flight attendants, before the Company may accept wet lease
business opportunities that use the flight attendants of the Company's
customers. The Company can provide no assurances as to how the imposition of
this requirement will affect the Company's financial condition and results of
operations.
The Company's aircraft dispatchers are represented by the Transport Workers
Union (the "TWU"). This contract became subject to renegotiation on June 30,
1993. In May 1995, the parties reached agreement with respect to a new four-
year contract, which was ratified in February 1996. Fewer than 12 Company
employees are covered by this collective bargaining agreement.
The Company is unable to predict whether any of its employees not currently
represented by a labor union, such as the Company's maintenance personnel, will
elect to be represented by a labor union or collective bargaining unit. The
election of such employees for representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial condition or results of the operations
of the Company.
Competition
The market for outsourcing air passenger and cargo ACMI services is highly
competitive. A number of airlines currently provide services for themselves and
for others similar to the services offered by the Company, and new airlines may
be formed that would also compete with the Company. Such airlines may have
substantially greater
43
<PAGE>
financial resources and a larger fleet of passenger and cargo aircraft than
those which are now, or will in the foreseeable future become, available to the
Company. The Company believes that the most important bases for competition in
the ACMI outsourcing business are the modernity of the aircraft fleet, the
passenger, payload and cubic capacities of the aircraft, and the price,
flexibility, quality and reliability of the passenger and cargo transportation
service. Competitors in the ACMI outsourcing market include MartinAir Holland,
Tower Air and American TransAir and all-cargo carriers, such as Atlas Air,
Gemini Air Cargo, Polar Air Cargo and Kitty Hawk, and scheduled and non-
scheduled passenger carriers which have substantial belly cargo capacity. The
ability of the Company to achieve growth depends upon its success in convincing
major international airlines that outsourcing some portion of their air
passenger and cargo business remains more cost-effective than undertaking
passenger or cargo operations with their own incremental capacity and resources.
See "--Business Strategy ." The allocation of military air transportation
contracts by the USAF is based upon the number and type of aircraft a carrier,
alone or through teaming arrangements, makes available for use in times of
national emergency. The formation of competing teaming arrangements that have
larger partners than those sponsored by the Company, an increase by other air
carriers in their commitment of aircraft to CRAF or the withdrawal of the
Company's current partners, could adversely affect the size of the USAF
contracts, if any, which are awarded to the Company in future years.
Regulation
Since it was founded in 1948, the Company has been authorized to engage in
commercial air transportation by the DOT or its predecessor agencies. The
Company is currently authorized to engage in the scheduled and charter air
transportation of combination (persons, property and mail) and all-cargo
services between all points in the U.S., its territories and possessions. It
also holds worldwide charter authority for both combination and all-cargo
operations. In addition, the Company is authorized to conduct scheduled
combination services to the foreign points listed in its DOT certificate. The
Company also holds certificates of authority to engage in scheduled all-cargo
services to a limited number of foreign destinations.
The Company is subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including flight operations, equipment, aircraft
noise, ground facilities, dispatch, communications, training, weather
observation, flight time, crew qualifications, aircraft registration and other
matters affecting air safety. The FAA requires each air carrier to obtain an
operating certificate and operations specifications authorizing the carrier to
operate to particular airports on approved international routes using specified
equipment. These certificates and specifications are subject to amendment,
suspension, revocation or termination by the FAA. In addition, all of the
Company's aircraft must have and maintain certificates of airworthiness issued
or approved by the FAA. The Company currently holds an FAA air carrier
operating certificate and operations specifications under Part 121 of the
Federal Aviation Regulations. The FAA has the authority to suspend temporarily
or revoke permanently the authority of the Company or its licensed personnel for
failure to comply with regulations promulgated by the FAA and to assess civil
penalties for such failures.
Under the Airport Noise and Capacity Act of 1990 and related FAA regulations,
the Company's aircraft fleet must comply with certain Stage 3 noise restrictions
by certain specified deadlines. All of the Company's aircraft currently meet
the Stage 3 noise reduction requirement, which is currently the most stringent
FAA noise requirement. FAA regulations require compliance with the Traffic
Alert and Collision Avoidance System ("TCAS"), approved airborne windshear
warning system, digital flight data recorder system and aging aircraft
regulations.
Additional laws and regulations have been proposed from time to time which
could significantly increase the cost of airline operations by imposing
additional requirements or restrictions on operations. Laws and regulations
have been considered from time to time that would prohibit or restrict the
ownership and transfer of airline routes or slots. There is no assurance that
laws and regulations currently enacted or enacted in the future will not
adversely affect the Company's ability to maintain its current level of
operating results.
Several aspects of airline operations are subject to regulation or oversight
by Federal agencies other than the DOT or FAA. For instance, labor relations in
the air transportation industry are generally regulated under the Railway Labor
Act, which vests in the National Mediation Board certain regulatory powers with
respect to disputes between airlines and labor unions arising under collective
bargaining agreements. In addition, the Company is
44
<PAGE>
subject to the jurisdiction of other governmental entities, including (i) the
FCC regarding its use of radio facilities pursuant to the Federal Communications
Act of 1934, as amended, (ii) the Commerce Department, the Customs Service, the
Immigration and Naturalization Service and the Animal and Plant Health
Inspection Service of the Department of Agriculture regarding the Company's
international operations, (iii) the Environmental Protection Agency (the "EPA")
regarding compliance with standards for aircraft exhaust emissions and (iv) the
Department of Justice regarding certain merger and acquisition transactions. The
EPA regulates operations, including air carrier operations, which affect the
quality of air in the U.S. The Company has made all necessary modifications to
its operating fleet to meet fuel-venting requirements and smoke emissions
standards issued by the EPA.
The Company's international operations are generally governed by the network
of bilateral civil air transport agreements providing for the exchange of
traffic rights between governments which then select and designate air carriers
authorized to exercise such rights. In the absence of a bilateral agreement,
such international air services are governed by principles of comity and
reciprocity. Bilateral provisions pertaining to the charter services provided
by the Company vary considerably depending on the particular country. Most
bilateral agreements into which the U.S. has entered permit either country to
terminate the agreement with one year's notification to the other. In the event
a bilateral agreement is terminated, international air service between the
affected countries is governed by the principles of comity and reciprocity.
Certain airports served by the Company are subject to slot allocations
administered by the governments of the countries in which such airports are
located or by coordinating committees comprising airline representatives. A
"slot" is an authorization to take off or land at the designated airport within
a specified time window. In the past, the Company has generally been successful
in obtaining the slots it needs in order to conduct planned operations. There
can be no assurance, however, that it will be able to do so in the future
because, among other factors, government policies regulating the distribution of
slots, both in the U.S. and in foreign countries, are subject to change.
Pursuant to federal law, no more than 25% of the voting interest in the
Company may be owned or controlled by Foreign Citizens. In addition, under
existing precedent and policy, actual control must reside in U.S. citizens. As
a matter of regulatory policy, the DOT has stated that it would not permit
aggregate equity ownership of a domestic air carrier by Foreign Citizens in an
amount in excess of 49%. The Company fully complies as of the date hereof with
these U.S. citizen ownership requirements. See "Description of Capital Stock."
Due to its participation in CRAF, the Company is subject to inspections
approximately every two years by the military as a condition of retaining its
eligibility to perform military charter flights. The last such inspection was
undertaken in 1996 and the next is anticipated to occur in 1998. As a result of
such inspections, the Company has been required to implement measures, such as
the establishment of a crew resource management course, beyond those required by
the DOT, FAA and other government agencies. The USAF may terminate its contract
with the Company if the Company fails to pass such inspection or otherwise fails
to maintain satisfactory performance levels, if the Company loses its
airworthiness certificate or if the aircraft pledged to the contracts lose their
U.S. registry or are leased to unapproved carriers.
The Company believes it is in compliance in all material respects with all
requirements necessary to maintain in good standing its operating authority
granted by the DOT and its air carrier operating certificate issued by the FAA.
A modification, suspension or revocation of any of the Company's DOT or FAA
authorizations or certificates could have a material adverse effect upon the
Company. The Company also is subject to state and local laws and regulations at
locations where it operates and the regulations of various local authorities
which operate the airports it serves. Certain airport operators have adopted
local regulations which, among other things, impose curfews and noise abatement
regulations. While the Company believes it is currently in compliance in all
material respects with all appropriate standards and has all required licenses
and authorities, any material non-compliance by the Company therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the Company.
45
<PAGE>
MANAGEMENT
Directors and Executive Officers
Set forth below are the names, ages and positions and a brief description of
the business experience of World Airways' directors and executive officers. All
directors hold office until the annual meeting of stockholders following the end
of their three-year term and until their successors are duly elected and
qualified.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
T. Coleman Andrews, III(1) ......... 43 Chairman of the Board
Russell L. Ray, Jr.(1) ............. 62 Director, President and Chief Executive Officer
Vance Fort .......................... 53 Executive Vice President and General Counsel
Ahmad M. Khatib .................... 47 Director and Executive Vice President--Marketing and Sales
William R. Lange ................... 52 Executive Vice President--Operations
A. Scott Andrews(2)(3) ............. 38 Director
John C. Backus, Jr. ................ 38 Director
Dato' Wan Malek Ibrahim(1) .......... 48 Director
Peter M. Sontag(2)(3) .............. 53 Director
Lim Kheng Yew ....................... 45 Director
</TABLE>
- --------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
T. Coleman Andrews, III has served as Chairman of the Board of the Company
since September 1986. Mr. Andrews is a Director and Chairman of the Board of
WorldCorp, and has served as a Director of InteliData Technologies Corporation
("InteliData") (and its predecessor U.S. Order, Inc.) ("US Order") since 1990.
From 1978 through 1986, he was affiliated with Bain & Company, Inc., an
international strategy consulting firm. At Bain, he was elected partner in 1982
and was a founding general partner in 1984 of The Bain Capital Fund, a private
venture capital partnership. Prior to his experience with Bain, Mr. Andrews
served in several appointed positions in the White House for the Ford
Administration. He is the brother of A. Scott Andrews.
Russell L. Ray, Jr. has served as a Director of the Company since July 1993.
Mr. Ray was appointed President and CEO of World Airways on April 4, 1997.
Prior to that appointment, Mr. Ray was senior advisor to Winston Partners, a
private investment firm. From 1992 to 1993, Mr. Ray served as Executive Vice
President of British Aerospace, Inc. From 1991 to 1992, Mr. Ray served as
President and Chief Executive Officer of Pan American World Airways. From 1988
to 1991, he served as Vice President and General Manager of Commercial Marketing
of McDonnell Douglas Corporation, from 1985 to 1988, he served as President of
Pacific Southwest Airlines and from 1971 to 1985, he served as Senior Vice
President at Eastern Airlines. Mr. Ray has also served on the boards of
directors of a number of public and private companies.
Vance Fort has served as Senior Vice President--Government Affairs and General
Counsel of the Company since July 1993 and currently manages the Human Resources
and Management Information Systems departments of the Company. He joined the
Company as Senior Vice President--Government and International Affairs, in
September 1989. He served as Vice President--International and Government
Affairs for the Flying Tiger Line, an air cargo service provider, from September
1987 to September 1989. From 1978 to 1987 he served in various positions at the
U.S. Department of Transportation, including service as Deputy Assistant
Secretary for Policy and International Affairs.
Ahmad M. Khatib has served as Executive Vice President--Marketing and Sales
since late 1996. Prior to this date, Mr. Khatib was Chief Operating Officer
since April 1996 and Director and Executive Vice President--Operations of the
Company since February 1994. Mr. Khatib has served as Senior Vice President,
in different capacities, since June 1988. He joined the Company in May 1972 as
a passenger service agent. During his more than 20 years with the Company, he
has held numerous management positions in the areas of sales, planning and
46
<PAGE>
services as well as in aircraft leasing and related agreements, becoming Vice
President of Marketing and Customer Services in 1987.
William R. Lange has served as Executive Vice President--Operations since
June 19, 1997. Prior to this date, Mr. Lange was the founder and principal of
Aero Initiatives, an aviation consulting firm. Mr. Lange was Executive Vice
President and Chief Operating Officer of Jetstream Aircraft, Inc. from 1993
until founding Aero Initiatives in 1996, and was Vice President--Jetstream
Programs for British Aerospace Holdings, Inc. from 1992. Prior to that, Mr.
Lange was President and Chief Operating Officer of Pan Am Express, Inc. from
1989 until 1993 and served in various positions for Pan American World Airways,
Inc. from 1973 until 1989.
A. Scott Andrews has served as a Director of the Company since June 1992. He
was a founder and has served as Managing Director of Winston Partners, L.P. a
private investment firm, since May 1994. He served as Chief Financial Officer
of the Company and WorldCorp from May 1992 until May 1994. Mr. Andrews joined
WorldCorp as Treasurer in August 1987 and was elected Vice President--Finance
and Treasurer of WorldCorp in April 1988. From August 1985 to February 1987, he
was Vice President--Finance of Presidential Airways, a passenger airline. From
September 1980 to August 1985, he was associated with J.P. Morgan & Co., a
banking firm, most recently as Assistant Vice President. He is the brother of
T. Coleman Andrews, III.
John C. Backus, Jr. worked at US Order since its inception in 1990 and
served as its President and Chief Operating Officer until US Order was merged
into InteliData in November 1996. Upon the effective date of the merger, Mr.
Backus became President and Chief Operating Officer of InteliData. Prior to
working with US Order, Mr. Backus worked for six years at WorldCorp and its
subsidiaries holding a variety of executive positions including Vice President
of Corporate Development, Vice President of Finance, and Vice President of Sales
and Marketing at World Airways. Prior to joining WorldCorp, Mr. Backus worked
at Bain & Company, Inc., a worldwide strategy consulting firm, in its consulting
and venture capital groups where he focused on consumer products and services.
Mr. Backus serves on the Board of Directors of InteliData and Home Financial
Network, Inc.
Dato' Wan Malek Ibrahim has served as a Director of the Company since February
1994. Mr. Malek is Managing Director and a member of the Board of Directors of
Malaysian Airlines. He is a Director of MHS and Polypulp Paper Industries
Berhad ("Polypulp"), an industrial paper manufacturer. Pursuant to the
Shareholders Agreement, WorldCorp is obligated to vote its shares to elect two
directors nominated by MHS. Mr. Malek is one of such nominees.
Peter M. Sontag has served as a Director of the Company since February 1994.
Mr. Sontag currently is Partner, Chairman and Chief Executive Officer of
Travelogue, a Travel Management Company. Mr. Sontag served as President of OAG
Travel Services, a travel services related company and a subsidiary of Reed
Travel Group from July 1995 to March 1996. From January 1995 to July 1995, Mr.
Sontag served as Chairman and Chief Executive Officer of Sontag & Associates,
Inc., a company providing advice and counsel to entities interested in worldwide
travel and travel-related growth. From 1986 to 1994, Mr. Sontag served as
Chairman and Chief Executive Officer of USTravel, a travel company he founded in
1986.
Lim Kheng Yew has served as a Director of the Company since February 1994.
Mr. Lim has served as Managing Director and Chief Executive Officer of MHS
since February 1996. Mr. Lim had served as Executive Director of Technology
Resources Industries Berhad ("TRI"), a telecommunications company, since prior
to 1990. He is a Director of MHS, TRI and Polypulp. Mr. Lim is one of the MHS
nominees to the Board.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company operated as a wholly-owned subsidiary of WorldCorp from June 1987
until February 1994 and has operated since February 1994 as a majority owned
subsidiary of WorldCorp. The Company completed an initial public offering of
its Common Stock in October 1995. Approximately 28.8% of the Company's
outstanding Common Stock is owned by public investors. WorldCorp owns 46.3% of
the Company's outstanding Common
47
<PAGE>
Stock. The remaining 24.9% is owned by MHS. Mr. T. Coleman Andrews, III,
the Company's Chairman, serves as Chairman of the Board of WorldCorp.
WorldCorp and the Company historically have utilized a single corporate staff
for administrative services, thus permitting the Company to utilize WorldCorp
management personnel as needed. Effective January 1, 1995, substantially all of
WorldCorp's management personnel became employees of the Company and since such
date, the Company has provided certain administrative services to WorldCorp.
WorldCorp and the Company have entered into a services agreement pursuant to
which the Company and WorldCorp will continue to provide services to each other
at negotiated rates, which the Company believes are comparable to those that
could be obtained on an arms-length basis. In June 1995, the Company borrowed
$1.8 million from WorldCorp pursuant to a demand promissory note with an
interest rate of 13.875%. In July 1995, this note was repaid to WorldCorp.
WorldCorp is subject to an indenture expiring in 2004, that could, under
certain circumstances, restrict the Company's ability to pay dividends to all
shareholders. The indenture is not applicable to World Airways if WorldCorp's
ownership is below 50% of the issued and outstanding shares of Common Stock. As
of September 30, 1997, WorldCorp owned approximately 46.3% of the outstanding
Common Stock. This percentage could increase if the Company purchases shares
from other stockholders. See "Prospectus Summary The Private Placement" and
"Dividend Policy."
Pursuant to the MHS October 1993 Stock Purchase Agreement, the Company and
WorldCorp sold 24.9% of the outstanding shares of Common Stock to MHS for $27.4
million (or $11.00 per share) in February 1994. In August 1994, MHS acquired
32% of the common stock, and assumed management control, of Malaysian Airlines,
one of the Company's largest customers. Effective December 31, 1994, WorldCorp
agreed to pay MHS $8.5 million pursuant to a promissory note due December 31,
1995 in exchange for (i) 5% of the outstanding shares of Common Stock which was
held by MHS, and (ii) the execution of a series of multi-year contracts between
the Company and Malaysian Airlines. WorldCorp paid the $8.5 million note in
full on December 31, 1995. Of the $8.5 million consideration paid by WorldCorp
to MHS, $3.0 million was attributable to certain contract enhancements received
by the Company as a result of such multi-year contracts with Malaysian Airlines.
Such $3.0 million amount is included in the Company's balance sheets in Other
Assets and Deferred Charges and in Contributed Capital.
In connection with the MHS Stock Purchase Agreement, the Company and MHS
executed a stock registration rights agreement, dated October 30, 1993 (the
"Stock Registration Rights Agreement") and the Company, MHS and WorldCorp
executed the Shareholders Agreement. Under the Stock Registration Rights
Agreement, if at any time the Company registers its Common Stock under the
Securities Act, MHS has the right to demand the registration of its shares of
Common Stock. Also, if without the prior written consent of MHS: (1) the
Company sells all or substantially all of its business; or (2) the Company
fundamentally changes its line of business, then under the Shareholders
Agreement, MHS may require WorldCorp to purchase all or part of MHS' shares at
fair market value. Fair market value is defined to be not less than the
aggregate of the costs borne by MHS in acquiring and holding shares of Common
Stock, which currently exceeds the market price of the Common Stock. The
Shareholders Agreement provides that if WorldCorp were to dispose of its
holdings in the Company with the result that WorldCorp's ownership interest in
the Company falls below 51% of the outstanding shares of Common Stock, then MHS
may either sell its shares to a third party or require WorldCorp to sell a pro
rata number of shares held by MHS to the party purchasing WorldCorp's shares.
The Shareholders Agreement also grants MHS a right of first refusal to purchase
shares of Common Stock issued by the Company or sold by WorldCorp to third
parties and to purchase additional shares of Common Stock to maintain its
ownership percentage in the Company. These rights were waived by MHS in
connection with the Company's initial public offering. In addition, the
Shareholders Agreement provides that (i) WorldCorp will vote its shares of
Common Stock to elect the number of directors nominated by MHS that represent
MHS' proportionate interest in the Company (not less than two directors), (ii)
the Company will declare and distribute all dividends properly payable, subject
to the requirements of law and general overall financial prudence, and (iii) the
Board of Directors will hold Board meetings only if a director nominated by MHS
is present and will not approve a sale of substantially all of the business of
the Company, transactions not in the ordinary course of the air transportation
business in excess of $500,000, the winding up of the business, the appointment
of outside auditors, or the appointment of committees of the Board of Directors
or the delegation of authority to such committees, without the consent of MHS,
or the directors nominated by MHS. WorldCorp-nominated directors must abstain
from voting on certain transactions in which WorldCorp or its affiliates have a
48
<PAGE>
beneficial interest. One of the Company's directors, Dato' Wan Malek Ibrahim,
serves as Managing Director of Malaysian Airlines and is a director of MHS.
Another director, Lim Kheng Yew, serves as Managing Director and CEO of MHS.
The Shareholders Agreement terminates if either WorldCorp's or MHS' ownership
interest falls below 5% of the outstanding capital stock of the Company.
The Company presently operates one cargo aircraft and two passenger aircraft
for Malaysian Airlines under multi-year agreements, expiring between 1999 and
2000. During 1996, the Company generated revenues of $105.4 million from
Malaysian Airlines under these and other agreements. The Company leases two
DC10-30 aircraft from Malaysian Airlines under leases that expire in August 1998
and December 1998.
49
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth, as of September 12, 1997, information
concerning the principal amount of Debentures beneficially owned by each Selling
Securityholder which may be offered from time to time pursuant to this
Prospectus. Other than as a result of the ownership or placement of Debentures
or Common Stock, none of the Selling Securityholders has had any material
relationship with the Company within the past three years, except as noted
herein. The table has been prepared based upon information furnished to the
Company by or on behalf of the Selling Securityholders.
<TABLE>
<CAPTION>
Principal Amount Principal Amount
of Debentures of Debentures Percent of
Name Beneficially Owned Being Registered Outstanding Debentures
- ---- ------------------ ---------------- ----------------------
(in thousands) (in thousands)
<S> <C> <C> <C>
The Bank of New York $ 500,000 $ 500,000 1.00%
925 Patterson Plank Road
Secaucus, NJ 07094
BankBoston, N.A. 298,000 298,000 0.60
150 Royal Street
Canton, MA 02021
Bankers Trust Company 13,477,000 13,477,000 26.95
c/o BT Services Tennessee, Inc.
648 Grassmere Park Drive
Nashville, TN 37211
Bear Stearns Securities Corp. 5,150,000 5,150,000 10.30
One Metrotech Center North, 4th Floor
Brooklyn, NY 11201-3862
Chase Manhattan Bank 1,803,000 1,803,000 3.61
Two Chase Manhattan Plaza
5th Floor
New York, NY 10081
Firstar Trust Company 1,000,000 1,000,000 2.00
777 East Wisconsin Avenue
Milwaukee, WI 53202
Fleet Bank of Massachusetts, N.A. 129,000 129,000 0.26
51 Mercedes Way
Edgewood, NJ 11717
First National Bank of Omaha 480,000 480,000 0.96
One First National Center
Omaha, NE 68102
Goldman, Sachs & Co. 1,500,000 1,500,000 3.00
51 Mercedes Way
Edgewood, NJ 11717
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C> <C>
Investors Bank & Trust/M.F. Custody 2,000,000 2,000,000 4.00
89 South Street, 6th Floor
Corp. Action Dept.
Boston, MA 02111
Merrill, Lynch Professional Clearing Corp. 500,000 500,000 1.00
20 Broad Street
New York, NY 10005
Montgomery Securities 500,000 500,000 1.00
51 Mercedes Way
Edgewood, NJ 11717
Morgan Stanley & Co. Incorporated 1,500,000 1,500,000 3.00
One Pierrepont Plaza
7th Floor
Brooklyn, NY 11201
Northern Trust Company 793,000 793,000 1.59
801 S. Canal C-IN
Chicago, IL 60607
Scott & Stringfellow, Inc. 500,000 500,000 1.00
909 E. Main Street
Richmond, VA 23219
Spear, Leeds & Kellogg 500,000 500,000 1.00
120 Broadway
New York, NY 10271-0093
SSB -- Custodian 7,000,000 7,000,000 14.00
Global Proxy Unit, A5NW
P.O. Box 1431
Boston, MA 02105-1631
Wilmington Trust Company 1,500,000 1,500,000 3.00
Rodney Square North
1100 North Market Street
Wilmington, DE 19890-0001
Chase Manhattan Bank/Chemical 9,370,000 9,370,000 18.74
2 Chase Manhattan Plaza
5th Floor
New York, NY 10081
E D & F Man International 200,000 200,000 0.40
440 South Lasalle Street
20th Floor
Chicago, IL 60605-1028
Kelly Asset Management 200,000 200,000 0.40
3000 Colfax Avenue
Suite 222
Denver, CO 80206-1607
</TABLE>
51
<PAGE>
<TABLE>
<S> <C> <C> <C>
Agoura Asset Management 100,000 100,000 0.20
29424 Weeping Willow Drive
Agoura, CA 91301-4135
NV Investments, Inc. 400,000 400,000 0.80
120 Broadway
New York, NY 10271-0002
Oscar Investment Fund 100,000 100,000 0.20
P.O. Box 64
Bowling Green Station
New York, NY 10274-0064
Fingerboard Management 250,000 250,000 0.50
Marie Chaseman 250,000 250,000 0.50
----------- ----------- ------
Total $50,000,000 $50,000,000 100.00%
=========== =========== ======
</TABLE>
Each Selling Securityholder is registering the entire amount of the Debentures
set forth opposite its name above. In addition, each Selling Securityholder is
registering the entire number of Shares which may be issued upon conversion of
the Debentures set forth opposite its name above. The exact number of Shares
which may be issued upon conversion of the Debentures cannot be determined until
the date of such conversion, as the conversion price is subject to adjustment
upon the occurrence of certain dilutive events. See "Description of
Debentures." At the initial conversion price of $8.90 per share, each $1,000
principal amount of Debentures entitles the holder thereof to 112,360 shares of
Common Stock. Further, because the Selling Securityholders may offer pursuant
to this Prospectus all or some part of the Securities which they beneficially
own and because such offer is not being underwritten on a firm commitment basis,
no estimate can be given as to the amount of Securities to be offered for sale
by the Selling Securityholders pursuant to this Prospectus or the amount of
Securities that will be held by the Selling Securityholders upon termination of
the offering pursuant to this Prospectus. See "Plan of Distribution." To the
extent required, the specific amount of Securities to be sold by a Selling
Securityholder in connection with a particular offer pursuant to this Prospectus
will be set forth in an accompanying Prospectus Supplement.
The Company and the Selling Securityholders have agreed to indemnify each
other against certain liabilities arising under the Securities Act. The Company
has agreed to pay all expenses incident to the offer and sale of the Debentures
and Common Stock to the public other than selling commissions and fees. See
"Plan of Distribution."
52
<PAGE>
DESCRIPTION OF DEBENTURES
On August 26, 1997, the Company issued and sold, through the Initial
Purchasers, an aggregate principal amount of $50,000,000 of the Debentures to
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act ("Qualified Institutional Buyers") and certain other investors pursuant to
Regulation S under the Securities Act in a private placement. As of the date of
this Prospectus, the Debentures are issued and outstanding under an Indenture
dated as of August 1, 1997 (the "Indenture") between the Company and First Union
National Bank, as trustee (the "Trustee"). The Indenture is included as an
exhibit to the Registration Statement to which this Prospectus is a part. The
following summaries of certain provisions of the Indenture do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Indenture, including the definition therein of
certain terms. Wherever particular sections or defined terms of the Indenture
are referred to, such sections or defined terms are incorporated herein by
reference.
General
The Debentures are unsecured obligations of the Company, are limited to $50.0
million in aggregate principal amount and mature on August 26, 2004. The
Debentures bear interest at the rate of 8% from August 26, 1997 or from the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semi-annually on February 26 and August 26 of each year, commencing
February 26, 1998, to the Person in whose name the Debenture (or any predecessor
Debenture) is registered at the close of business on the preceding February 11
or August 11, as the case may be. Interest on the Debentures is paid on the
basis of a 360-day year of 12 30-day months.
Principal of, and premium, if any, interest and Liquidated Damages (if any)
on, the Debentures are payable in same day funds (i) in respect of Debentures
held of record by the Depository Trust Company ("DTC") or its nominee on or
prior to the payment dates with respect to such amounts and (ii) in respect of
Debentures held of record by holders other than DTC or its nominee at the office
of the Trustee, or its agent, in New York, New York. The Debentures may be
surrendered for transfer, exchange or conversion at the office of the Trustee,
or its agent, in New York, New York. In addition, with respect to Debentures
held of record by holders other than DTC or its nominee, payment of interest and
Liquidated Damages (if any) may be made by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by check mailed to the address of the persons entitled
thereto as it appears in the Register for the Debentures on the Regular Record
Date for such interest. (Section 301)
The Debentures will be issued only in registered form, without coupons and in
denominations of $1,000 or any integral multiple thereof. (Section 302) No
service charge will be made for any transfer or exchange of the Debentures, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge and any other expenses (including the fees and expenses of
the Trustee) payable in connection therewith. (Section 304) The Company is not
required (i) to issue, register the transfer of or exchange any Debentures
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption and ending at the close of business on the
day of such mailing, or (ii) to register the transfer or exchange of any
Debenture selected for redemption in whole or in part, except the unredeemed
portion of Debentures being redeemed in part.
All monies paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and premium and interest on any Debenture which remain
unclaimed for two years after such principal, premium or interest become due and
payable may be repaid to the Company. Thereafter, the Holder of such Debentures
may, as an unsecured general creditor, look only to the Company for payment
thereof.
The Indenture does not contain any provisions that would provide protection to
Holders of the Debentures against a sudden and dramatic decline in credit
quality of the Company resulting from any takeover, recapitalization or similar
restructuring, except as described below under "Certain Rights to Require
Repurchase of Debentures."
53
<PAGE>
Conversion Rights
The Debentures are convertible into Common Stock at any time after October 25,
1997 and prior to redemption or final maturity, initially at the conversion
price of $8.90 per share. The right to convert Debentures which have been
called for redemption will terminate at the close of business on the second
business day preceding the Redemption Date. (Section 1301) See "Optional
Redemption" below.
The conversion price is subject to adjustment upon the occurrence of any of
the following events: (i) the subdivision, combination or reclassification of
outstanding shares of Common Stock; (ii) the payment in shares of Common Stock
of a dividend or distribution on any class of capital stock of the Company;
(iii) the issuance of rights or warrants to all holders of Common Stock
entitling them to acquire shares of Common Stock at a price per share less than
the Current Market Price (as defined in the Indenture); (iv) the distribution to
holders of Common Stock of shares of capital stock other than Common Stock,
evidences of indebtedness or assets (including securities, but excluding
dividends or distributions paid exclusively in cash and dividends,
distributions, rights and warrants referred to above); (v) a distribution of
cash (excluding any cash portion of a distribution resulting in an adjustment
pursuant to clause (iv) above) to all holders of Common Stock in an aggregate
amount that, together with (A) all other cash distributions made within the 12
months preceding such distribution and (B) any cash and the fair market value of
other consideration payable in respect of any tender offer by the Company or a
subsidiary of the Company for the Common Stock consummated within the 12 months
preceding such distribution, exceeds 12.5% of the Company's market
capitalization (being the product of the Current Market Price times the number
of shares of common Stock then outstanding) on the date fixed for determining
the stockholders entitled to such distribution; and (vi) the consummation of a
tender offer made by the Company or any subsidiary of the Company for the Common
Stock which involves an aggregate consideration that, together with (X) any cash
and other consideration payable in respect of any tender offer by the Company or
a subsidiary of the Company for the Common Stock consummated within the 12
months preceding the consummation of such tender offer and (Y) the aggregate
amount of all cash distributions (excluding any cash portion of a distribution
resulting in an adjustment pursuant to clause (iv) above) to all holders of the
Common stock within the 12 months preceding the consummation of such tender
offer, exceeds 12.5% of the Company's market capitalization at the date of
consummation of such tender offer. (Section 1301) No adjustment of the
conversion price will be required to be made until cumulative adjustments amount
to at least one percent of the conversion price, as last adjusted. Any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment. (Section 1304)
In addition to the foregoing adjustments, the Company will be permitted to
reduce the conversion price as it considers to be advisable in order that any
event treated for federal income tax purposes as a dividend of stock or stock
rights will not be taxable to the holders of the Common Stock or, if that is not
possible, to diminish any income taxes that are otherwise payable because of
such event. (Section 1304)
In the case of any consolidation or merger of the Company with any other
corporation (other than one in which no change is made in the Common Stock), or
any sale or transfer of all or substantially all of the assets of the Company,
the Holder of any Debenture then outstanding will, with certain exceptions, have
the right thereafter to convert such Debenture only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer by a holder of the number of shares of Common Stock into which
such Debenture might have been converted immediately prior to such
consolidation, merger, sale or transfer; and adjustments will be provided for
events subsequent thereto that are as nearly equivalent as practical to the
conversion price adjustments described above. (Section 1311)
Fractional shares of Common Stock will not be issued upon conversion, but, in
lieu thereof, the Company will pay a cash adjustment based upon the then Closing
Price at the close of business on the day of conversion. (Section 1303) If any
Debentures are surrendered for conversion during the period from the opening of
business on any Regular Record Date through and including the next succeeding
Interest Payment Date (except any such Debentures called for redemption), such
Debentures when surrendered for conversion must be accompanied by payment in New
York Clearing House funds of an amount equal to the interest thereon which the
registered Holder on such Regular Record Date is to receive. (Section 1302)
Except as described in the preceding sentence, no interest will be payable by
the Company on converted Debentures with respect to any Interest Payment Date
subsequent to the date of
54
<PAGE>
conversion. (Section 307) No other payment or adjustment for interest or
dividends is to be made upon conversion. (Section 1302)
Subordination
The payment of the principal of and premium, if any, interest and Liquidated
Damages, if any, on the Debentures will, to the extent set forth in the
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness. The Debentures will be senior subordinated
indebtedness of the Company ranking pari passu with all future senior
subordinated indebtedness of the Company and senior to all existing and future
Subordinated Indebtedness of the Company. If there is a payment or distribution
of assets to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors, marshaling of assets or
any bankruptcy, insolvency or similar proceedings of the Company, the holders of
all Senior Indebtedness will be entitled to receive payment in full of all
amounts due or to become due thereon or provision for such payment in money or
money's worth before the Holders of the Debentures will be entitled to receive
any payment in respect of the principal of or premium, if any, interest or
Liquidated Damages, if any, on the Debentures. (Section 1202) In the event of
the acceleration of the Maturity of the Debentures, the holders of all Senior
Indebtedness will first be entitled to receive payment in full in cash of all
amounts due thereon or provision for such payment in money or money's worth
before the Holders of the Debentures will be entitled to receive any payment for
the principal of or premium, if any, interest or Liquidated Damages, if any, on
the Debentures. (Section 1203) No payments on account of principal of or
premium, if any, interest or Liquidated Damages, if any, on the Debentures or on
account of the purchase or acquisition of Debentures may be made if there has
occurred and is continuing a default in any payment with respect to Senior
Indebtedness, any acceleration of the maturity of any Senior Indebtedness or if
any judicial proceeding is pending with respect to any such default. (Section
1204)
Senior Indebtedness is defined in the Indenture as the principal of and
premium, if any, and interest on (a) all indebtedness of the Company for money
borrowed, whether outstanding on the date of execution of the Indenture or
thereafter created, incurred or assumed, except any such other indebtedness that
by the terms of the instrument or instruments by which such indebtedness was
created or incurred expressly provides that it (i) is junior in right of payment
to the Debentures ("Subordinated Indebtedness") or (ii) ranks pari passu in
right of payment with the Debentures, and (b) any amendments, renewals,
extensions, modifications, refinancings and refundings of any of the foregoing.
The term "indebtedness for money borrowed" when used with respect to the Company
is defined to mean (i) any obligation of, or any obligation guaranteed by, the
Company for the repayment of borrowed money (including, without limitation,
fees, penalties and other obligations in respect thereof), whether or not
evidenced by bonds, debentures, notes or other written instruments, and
reimbursement obligations for letters of credit, (ii) any deferred payment
obligation of, or any such obligation guaranteed by, the Company for the payment
of the purchase price of property or assets evidenced by a note or similar
instrument and (iii) any obligations and other liabilities (contingent or
otherwise) of, or any such obligation guaranteed by, the Company for the payment
of rent or other amounts under a lease of property or assets which obligation is
required to be classified and accounted for as a capitalized lease on the
balance sheet of the Company under generally accepted accounting principles.
(Section 101)
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness. At June 30, 1997, the aggregate amount of Senior Indebtedness
outstanding and the amount of indebtedness and other liabilities of the Company
to which the Debentures are effectively subordinated was $40.8 million
(including $6.7 million attributable to capital lease obligations), no
indebtedness of the Company was outstanding that would have ranked pari passu
with the Debentures, and no indebtedness was outstanding that would have been
Subordinated Indebtedness. The Company also expects to incur Senior
Indebtedness from time to time in the future.
Optional Redemption
The Debentures are redeemable, at the Company's option, in whole or from time
to time in part, at any time on or after August 26, 2000, upon not less than 30
nor more than 60 days' notice mailed to each Holder of Debentures to be redeemed
at its address appearing in the Security Register and prior to Maturity at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to the Redemption Date (subject to
55
<PAGE>
the right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date) (Article Eleven).
If redeemed during the 12-month period beginning August 26, in the year
indicated, the redemption price shall be:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- ----------
<S> <C>
2000 ................................................................ 104.571%
2001 ................................................................ 103.429%
2002 ................................................................ 102.286%
2003 ................................................................ 101.143%
</TABLE>
and thereafter, at a redemption price equal to 100% of the principal amount,
together with accrued interest in each case, to the date of redemption.
No sinking fund is provided for the Debentures.
Consolidation, Merger and Sale of Assets
The Company will not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person unless (a) if applicable, the Person formed by such consolidation
or into which the Company is merged or the Person which acquires or leases all
or substantially all the properties and assets of the Company is a corporation,
limited liability company, partnership or, trust organized and validly existing
under the laws of the United States or any state thereof or the District of
Columbia and expressly assumes payment of the principal of and premium, if any,
and interest on the Debentures and performance and observance of each obligation
of the Company under the Indenture, (b) after consummating such consolidation,
merger, conveyance, transfer or lease, no Default or Event of Default will occur
and be continuing, (c) such consolidation, merger, conveyance, transfer or lease
does not adversely affect the validity or enforceability of the Debentures and
(d) the Company has delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease complies with the provisions of the Indenture. (Section 801)
Certain Rights to Require Repurchase of Debentures
In the event of any Repurchase Event (as defined below) occurring on or prior
to Maturity, each Holder of Debentures will have the right, at the Holder's
option, to require the Company to repurchase all or any part of the Holder's
Debentures on the date (the "Repurchase Date") that is 60 days after the date
the Company gives notice of the Repurchase Event as described below at a price
(the "Repurchase Price") equal to 100% of the principal amount thereof, together
with accrued and unpaid interest to the Repurchase Date. (Section 1401) On or
prior to the Repurchase Date, the Company shall deposit with the Trustee or a
Paying Agent an amount of money in same day funds sufficient to pay the
Repurchase Price of the Debentures which are to be repaid on or promptly
following the Repurchase Date. (Section 1403)
Failure by the Company to provide timely notice of a Repurchase Event, as
provided for below, or to repurchase the Debentures when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture. (Section 501)
On or before the 60th day after the occurrence of a Repurchase Event, the
Company is obligated to mail to all Holders of Debentures a notice of the
occurrence of such Repurchase Event identifying the event constituting the
Repurchase Event and the date thereof, the Repurchase Date, the date by which
the repurchase right must be exercised, the Repurchase Price for Debentures and
the procedures which the Holder must follow to exercise this
56
<PAGE>
right. To exercise the repurchase right, the Holder of a Debenture must
deliver, on or before the close of business on the Repurchase Date, written
notice to the Company (or an agent designated by the Company for such purpose)
and to the Trustee, of the Holder's exercise of such right, together with the
certificates evidencing the Debentures with respect to which the right is being
exercised, duly endorsed for transfer. (Section 1402)
A "Repurchase Event" shall mean (i) failure by the Company to effect the
repurchase of at least 4.0 million shares of Common Stock within 150 days after
the original issue of the Debentures or (ii) the occurrence of a Change in
Control (as defined below) or a Termination of Trading (as defined below).
(Section 1406)
A "Change in Control" shall occur when: (i) all or substantially all of the
Company's assets are sold as an entirety to any person or related group of
persons; (ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving corporation
(other than a consolidation or merger with a wholly owned subsidiary of the
Company in which all shares of Common Stock outstanding immediately prior to the
effectiveness thereof are changed into or exchanged for the same consideration)
or (B) pursuant to which the Common Stock would be converted into cash,
securities or other property, except in the case of (A) and (B), a consolidation
or merger of the Company in which the holders of the Common Stock immediately
prior to the consolidation or merger have, directly or indirectly, at least a
majority of the total voting power of all classes of capital stock entitled to
vote generally in the election of directors of the continuing or surviving
corporation immediately after such consolidation or merger in substantially the
same proportion as their ownership of Common Stock immediately before such
transaction; (iii) any person, or any persons acting together which would
constitute a "group" for purposes of Section 13(d) of the Exchange Act, together
with any affiliates thereof (excluding, for purposes of this clause, WorldCorp)
shall beneficially own (as defined in Rule 13d-3 under the Securities and
Exchange Act of 1934, as amended) at least 50% of the total voting power of all
classes of capital stock of the Company entitled to vote generally in the
election of directors of the Company; (iv) at any time during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; or (v) the Company is liquidated or dissolved or adopts a plan
of liquidation or dissolution; provided, however, that a Change in Control shall
not be deemed to have occurred if either (a) the closing price per share of the
Common Stock for any 10 Trading Days within the period of 20 consecutive Trading
Days ending immediately before the Change in Control shall equal or exceed 105%
of the conversion price in effect on each such Trading Day, or (b) (i) at least
90% of the consideration (excluding cash payments for fractional shares) in the
transaction or transactions constituting the Change in Control consists of
shares of common stock with full voting rights traded on a national securities
exchange or quoted on Nasdaq (or which will be so traded or quoted when issued
or exchanged in connection with such Change in Control) (such securities being
referred to as "Publicly Traded Securities") and as a result of such transaction
or transactions such Debentures become convertible solely into such Publicly
Traded Securities and (ii) the consideration in the transaction or transactions
constituting the Change in Control consists of cash, Publicly Traded Securities
or a combination of cash and Publicly Traded Securities with an aggregate fair
market value (which, in the case of Publicly Traded Securities, shall be equal
to the average closing price of such Publicly Traded Securities during the ten
consecutive Trading Days commencing with the sixth Trading Day following
consummation of the transaction or transactions constituting the Change in
Control) of at least 105% of the Conversion Price in effect on the date
immediately preceding the date of consummation of such Change in Control.
(Section 1406)
A "Termination of Trading" shall occur if the Common Stock (or other common
stock into which the Debentures are then convertible) is neither listed for
trading on a U.S. national securities exchange nor approved for trading on an
established automated over-the-counter trading market in the United States.
(Section 1406)
The Change of Control purchase feature of the Debentures may make more
difficult or discourage a takeover of the Company, and, thus, the removal of
incumbent management.
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The right to require the Company to repurchase Debentures as a result of the
occurrence of a Repurchase Event could create an event of default under Senior
Indebtedness of the Company, as a result of which any repurchase could, absent a
waiver, be blocked by the subordination provisions of the Debentures. See
"Subordination." Failure by the Company to repurchase the Debentures when
required will result in an Event of Default with respect to the Debentures
whether or not such repurchase is permitted by the subordination provisions.
The Company's ability to pay cash to the Holders of Debentures upon a repurchase
may be limited by certain financial covenants contained in the Company's Senior
Indebtedness.
In the event a Repurchase Event occurs and the Holders exercise their rights
to require the Company to repurchase Debentures, the Company intends to comply
with applicable tender offer rules under the Exchange Act, including Rules 13e-4
and 14e-1, as then in effect, with respect to any such purchase.
The foregoing provisions would not necessarily afford Holders of the
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders. Moreover, certain
events that may involve an actual change of control would not constitute a
"Change of Control" for purposes of the Indenture. In addition, the foregoing
provisions may discourage open market purchases of the Common Stock or a non-
negotiated tender or exchange offer for such stock and, accordingly, may limit a
stockholder's ability to realize a premium over the market price of the Common
Stock in connection with any such transaction.
Rule 144A Information Requirement
The Company has agreed to furnish to the Holders or beneficial holders of the
Debentures and prospective purchasers of the Debentures designated by the
Holders of the Debentures, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act until such time
as the Company registers the Debentures and the Shares for resale under the
Securities Act. (Section 705)
Events of Default
The following are Events of Default under the Indenture with respect to the
Debentures: (a) default in the payment of principal of or premium, if any, on
any Debenture when due (even if such payment is prohibited by the subordination
provisions of the Indenture); (b) default in the payment of any interest on, or
Liquidated Damages with respect to, any Debenture when due, which default
continues for 30 days (even if such payment is prohibited by the subordination
provisions of the Indenture); (c) failure to provide timely notice of a
Repurchase Event as required by the Indenture; (d) default in the payment of the
Repurchase Price in respect of any Debenture on the Repurchase Date therefor
(even if such payment is prohibited by the subordination provisions of the
Indenture); (e) default in the performance, or breach, of any other covenant of
the Company in the Indenture which continues for 60 days after written notice as
provided in the Indenture; (f) default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any subsidiary of
the Company or under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the Company or any subsidiary of the Company, whether such
indebtedness now exists or shall hereafter be created, which default shall
constitute a failure to pay the principal of indebtedness in excess of
$5,000,000 when due and payable after the expiration of any applicable grace
period with respect thereto or shall have resulted in indebtedness in excess of
$5,000,000 becoming or being declared due and payable prior to the date on which
it would otherwise have become due and payable, without such indebtedness having
been discharged, or such acceleration having been rescinded or annulled, within
a period of 30 days after there shall have been given to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Debentures a written notice
specifying such default and requiring the Company to cause such indebtedness to
be discharged or cause such acceleration to be rescinded or annulled; and (g)
certain events in bankruptcy, insolvency or reorganization of the Company or any
Material Subsidiary of the Company. (Section 501)
If an Event of Default with respect to the Debentures shall occur and be
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Debentures then outstanding may declare the
principal of, premium, if any, and interest accrued on the Debentures to the
date of declaration and Liquidated Damages, if any, on all such Debentures to be
due and payable immediately, but if the Company cures all Events of
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Default (except the nonpayment of interest on, premium, if any, and principal of
any Debentures) and certain other conditions are met, such declaration may be
canceled and past defaults may be waived by the holders of a majority in
principal amount of Outstanding Debentures. (Section 502) If an Event of Default
shall occur as a result of an event of bankruptcy, insolvency or reorganization
of the Company or any subsidiary of the Company, the principal of, premium, if
any, accrued and unpaid interest and Liquidated Damages, if any, on the
Debentures shall automatically become due and payable. (Section 502) The Company
is required to furnish to the Trustee annually a statement as to the performance
by the Company of certain of its obligations under the Indenture and as to any
default in such performance. (Section 1004) The Indenture provides that the
Trustee may withhold notice to the Holders of the Debentures of any continuing
default (except in the payment of the principal of or premium, if any, or
interest on any Debentures) if the Trustee considers it in the interest of
Holders of the Debentures to do so. (Section 602)
Modification, Amendments and Waivers
Except as provided in the next two succeeding paragraphs, the Indenture or the
Debentures may be amended or supplemented with the consent of the Holders of not
less than a majority in principal amount of the Debentures, and any past default
hereunder and its consequences may be waived by the Holders of not less than a
majority in principal amount of the Debentures. (Article Nine and Section 513)
Without the consent of the Holder of each Outstanding Debenture affected, an
amendment or supplement may not: (i) change the Maturity of the principal of, or
any installment of interest on, any Debenture, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the place of payment where, or the coin or
currency in which, any Debenture or any premium or interest thereon is payable,
or impair the right to institute suit for the enforcement of any such payment on
or after the Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or adversely affect the right to convert any Debenture as
provided in the Indenture, or modify the provisions of the Indenture relating to
the Holder's right to require repurchase, or the provisions of the Indenture
with respect to the subordination of the Debentures, in a manner adverse to the
Holders; (ii) reduce the percentage in principal amount of the Debentures, the
consent of whose Holders is required for any such supplemental indenture, or the
consent of whose Holders is required for any waiver of compliance with certain
provisions of the Indenture or certain defaults thereunder and their
consequences provided for in the Indenture; (iii) make any change in the
Indenture relating to waivers of past Defaults or the right of Holders of
Debentures to receive payments of principal of, premium, if any, interest or
Liquidated Damages, if any, on the Debentures; or (iv) modify any of the
provisions of the Indenture relating to amendment, supplement or waiver (except
to increase any such percentage or to provide that certain other provisions of
the Indenture cannot be modified or waived without the consent of the Holder of
each Debenture affected). (Section 902)
Modifications and amendments of the Indenture may be made by the Company and
the Trustee without the consent of the Holders to: (a) cause the Indenture to be
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"); (b) evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the Company herein
and in the Debentures; (c) add to the covenants of the Company for the benefit
of the Holders or an additional Event of Default, or surrender any right
or power conferred upon the Company; (d) secure the Debentures; (e) make
provision with respect to the conversion rights of Holders in the event of a
consolidation, merger or sale of assets involving the Company, as required by
the Indenture; (f) evidence and provide for the acceptance of appointment by a
successor Trustee with respect to the Debentures; (g) cure any ambiguity,
correct or supplement any provision which may be defective or inconsistent with
any other provision, or make any other provisions with respect to matters or
questions arising under the Indenture which shall not be inconsistent with the
provisions of the Indenture, provided, however, that no such modifications or
amendment may adversely affect the interest of Holders in any material respect.
(Section 901)
Book-Entry, Delivery and Form
The Debentures that were sold to Qualified Institutional Buyers in the Private
Placement in reliance on Rule 144A under the Securities Act have been issued in
the form of one global Debenture (the "Rule 144A Global Security") which was
deposited with, or on behalf of, DTC and registered in the name of DTC or its
nominee (the "Global Security Holder"). (Section 201) Except as set forth
below, the Rule 144A Global Security may be
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transferred, in whole and not in part, only to DTC or another nominee of DTC.
Investors may hold their beneficial interests in the Rule 144A Global Security
directly through DTC if they are Participants in such system or indirectly
through organizations that are Participants in such system. (Section 304)
The Debentures originally sold to "accredited investors" (as defined in Rule
501(a)(1), (2), (3), (5), (6) or (7) under the Securities Act and referred to as
"Accredited Investors") who are not Qualified Institutional Buyers have been
issued and registered in certificated form without coupons and bear a legend
containing restrictions on transfers (the "Certificated Securities").
Certificated Securities are not eligible to be exchanged for an interest in a
Global Security. (Section 201)
The Debentures that were sold outside of the United States in the Private
Placement in reliance on Regulation S under the Securities Act initially are
represented by the Regulation S Temporary Global Security. The Regulation S
Temporary Global Security was deposited on behalf of the subscribers therefor
with a custodian for DTC. The Regulation S Temporary Global Security is
registered in the name of DTC or its nominee for credit to the subscribers'
respective accounts at Morgan Guaranty Trust Company of New York, Brussels
office, as operator of Euroclear or Cedel Bank. Beneficial interests in the
Regulation S Temporary Global Security may be held only through Euroclear or
Cedel Bank. (Section 201)
Within a reasonable period of time after the expiration of the 40-day
restricted period referred to in Rule 903(c)(3) of Regulation S under the
Securities Act (the "40-day restricted period"), the Regulation S Temporary
Global Security will be exchanged for the Regulation S Permanent Global Security
upon delivery to DTC of certification of compliance with the transfer
restrictions applicable to the Debentures and pursuant to Regulation S under the
Securities Act as provided in the Indenture. (Section 304) The Regulation S
Permanent Global Security will be deposited with a custodian and will be
registered in the name of a nominee of DTC. (Section 201) Cedel Bank and
Euroclear will hold beneficial interests in the Regulation S Permanent Global
Security on behalf of their participants through their respective depositaries,
which in turn will hold such beneficial interests in the Regulation S Permanent
Global Security in participants' securities accounts in the depositaries' names
on the books of DTC.
Prior to and after the expiration of the 40-day restricted period, a
beneficial interest in the Regulation S Temporary Global Security may be
transferred to a person who takes delivery in the form of an interest in the
Rule 144A Global Security only upon receipt by the Trustee of a written
certification from the transferor in the form required by the Indenture to the
effect that such transfer is being made (i) to a person whom the transferor
reasonably believes is a Qualified Institutional Buyer in a transaction meeting
the requirements under the Securities Act (in which case such certificate must
be accompanied by an opinion of counsel regarding the availability of such
exemption) and (ii) in accordance with all applicable securities laws of any
state of the United States or any other jurisdiction. Beneficial interests in
the Rule 144A Global Security may be transferred to a person who takes delivery
in the form of an interest in the Regulation S Temporary or Permanent Global
Security, whether before, on or after the 40-day restricted period, only upon
receipt by the Trustee of a written certification from the transferor in the
form required by the Indenture to the effect that such transfer is being made in
accordance with Regulation S. Any beneficial interest in one of the Global
Securities that is transferred to a person who takes delivery in the form of an
interest in another Global Security will, upon transfer, cease to be an interest
in such Global Security and become an interest in such other Global Security
and, accordingly, will thereafter be subject to all transfer restrictions and
other procedures applicable to beneficial interests in such other Global
Security for as long as it remains such an interest. (Section 304)
Because of time zone differences, the securities accounts of Euroclear or
Cedel Bank participants (each, a "Member Organization") purchasing an interest
in a Global Security from a Depositary Participant that is not a Member
Organization will be credited during the securities settlement processing day
(which must be a business day for Euroclear or Cedel Bank, as the case may be)
immediately following the Depositary settlement date. Transactions in interests
in a Global Security settled during any securities settlement processing day
will be reported to the relevant Member Organization on the same day. Cash
received in Euroclear or Cedel Bank as a result of sales of interests in a
Global Security by or through a Member Organization to a Depositary Participant
that is not a Member Organization will be received with value on the Depositary
settlement date, but will not be available in the relevant Euroclear or Cedel
Bank cash account until the business day following settlement at the Depositary.
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Subject to compliance with the transfer restrictions applicable to the Global
Securities described above and in the Indenture, cross-market transfers between
holders of interests in the Rule 144A Global Security, on the one hand, and
direct or indirect account holders at a Member Organization holding interests in
the Regulation S Permanent Global Security, on the other, will be effected
through the Depositary in accordance with the Depositary's rules and the rules
of Euroclear or Cedel Bank, as applicable. Such cross-market transactions will
require, among other things, delivery of instructions by such Member
Organization to Euroclear or Cedel Bank, as the case may be, in accordance with
the rules and procedures and within deadlines (Brussels time) established in
Euroclear or Cedel Bank, as the case may be. If the transaction complies with
all relevant requirements, Euroclear or Cedel Bank, as the case may be, will
then deliver instructions to its depositary to take action to effect final
settlement on its behalf.
DTC is a limited-purpose trust company that was created to hold securities for
its participating organizations (collectively, the "Participants" or "DTC's
Participants") and to facilitate the clearance and settlement of transactions in
such securities between Participants through electronic book-entry changes in
accounts of its Participants. DTC's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or "DTC's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through DTC's
Participants or DTC's Indirect Participants.
Pursuant to procedures established by DTC (i) upon the issuance of the Rule
144A Global Securities, the Regulation S Temporary Global Securities or the
Regulation S Permanent Global Securities (each, a "Global Security" and
together, the "Global Securities"), DTC will credit the accounts of Participants
designated by the Initial Purchaser with portions of the principal amount of the
Global Securities and (ii) ownership of the Debentures evidenced by the Global
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the interests
of the Depositary's Participants), DTC's Participants and DTC's Indirect
Participants. Prospective purchasers are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Debentures
evidenced by the Global Securities will be limited to such extent.
So long as the Global Security Holder is the registered owner of any
Debentures, the Global Security Holder will be considered the sole Holder under
the Indenture of any Debentures evidenced by the Global Securities. Beneficial
owners of Debentures evidenced by the Global Securities will not be considered
the owners or holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of DTC or for
maintaining, supervising or reviewing any records of DTC relating to the
Debentures.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Debentures registered in the name of the
Global Security Holder on the applicable Record Date will be payable by the
Trustee to or at the direction of the Global Security Holder in its capacity as
the registered holder under the Indenture. Under the terms of the Indenture,
the Company and the Trustee may treat the persons in whose names Debentures,
including the Global Securities, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Company nor the
Trustee has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Debentures (including principal, premium, if
any, interest and Liquidated Damages, if any). The Company believes, however,
that it is currently the policy of DTC to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown on
the records of DTC. Payments by Participants and Indirect Participants to the
beneficial owners of Debentures will be governed by standing instructions and
customary practice and will be the responsibility of Participants or Indirect
Participants.
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Payments; Certifications by Holders of the Regulation S Temporary Global
Security
A holder of a beneficial interest in the Regulation S Temporary Global
Security must provide Euroclear or Cedel Bank, as the case may be, with a
certificate in the form required by the Indenture certifying that the beneficial
owner of the interest in the Regulation S Temporary Global Security is either
not a U.S. Person (as defined below) or has purchased such interest in a
transaction that is exempt from the registration requirements under the
Securities Act and is in the process of obtaining a beneficial interest in the
Rule 144A Global Security in exchange for its beneficial interest in the
Regulation S Temporary Global Security (the "Regulation S Certificate"), and
Euroclear or Cedel Bank, as the case may be, must provide to the Trustee (or the
Paying Agent if other than the Trustee) a certificate in the form required by
the Indenture, prior to (i) the payment of interest or principal with respect to
such holder's beneficial interest in the Regulation S Temporary Global Security
and (ii) any exchange of such beneficial interest for a beneficial interest in
the Regulation S Permanent Global Security. "U.S. Person" means (i) any
individual resident in the United States, (ii) any partnership or corporation
organized or incorporated under the laws of the United States, (iii) any estate
of which any executor or administrator is a U.S. Person (other than an estate
governed by foreign law and of which at least one executor or administrator is a
non-U.S. Person who has sole or shared investment discretion with respect to
its assets), (iv) any trust of which any trustee is a U.S. Person (other than a
trust of which at least one trustee is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. Person), (v) any agency or
branch of a foreign entity located in the United States, (vi) any non-
discretionary or similar account (other than an estate or trust) held by a
dealer or other fiduciary for the benefit or account of a U.S. Person, (vii)
any discretionary or similar account (other than an estate or trust) held by a
dealer or other fiduciary organized, incorporated or (if an individual) resident
in the United States (other than such an account held for the benefit or account
of a non-U.S. Person) and (viii) any partnership or corporation organized or
incorporated under the laws of a foreign jurisdiction and formed by a U.S.
Person principally for the purpose of investing in securities not registered
under the Securities Act (unless it is organized or incorporated, and owned, by
accredited investors within the meaning of Rule 501(a) under the Securities Act
who are not natural persons, estates or trusts); provided, however, that the
term "U.S. Person" shall not include (A) a branch or agency of a U.S. Person
that is located and operating outside the United States for valid business
purposes as a locally regulated branch or agency engaged in the banking or
insurance business, (B) any employee benefit plan established and administered
in accordance with the law, customary practices and documentation of a foreign
country and (C) the international organizations set forth in Section 902(c)(7)
of Regulation S under the Securities Act and any other similar international
organizations, and their agencies, affiliates and pension plans. (Section 304)
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in the
Global Securities may, upon request to the Trustee, exchange such beneficial
interest for Debentures evidenced by registered, definitive Certificated
Securities. Upon any such issuance, the Trustee is required to register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). All such Certificated
Securities would be subject to the legend requirements as provided in the
Indenture. In addition, if (i) the Company notifies the Trustee in writing that
DTC is no longer willing or able to act as a depositary and the Company is
unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Debentures in the form of Certificated Securities under the Indenture, then,
upon surrender by the Global Security Holder of its Global Securities,
Debentures in such form will be issued to each person that the Global Security
Holder and DTC identify as being the beneficial owner of the related Debentures.
(Section 304)
Neither the Company nor the Trustee will be liable for any delay by the Global
Security Holder or DTC in identifying the beneficial owners of Debentures and
the Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Security Holder or DTC for all
purposes.
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Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Debentures represented
by the Global Security (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Security Holder. With respect to
Certificated Securities, the Company will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearing-house or next-day funds. In
contrast, the Debentures represented by the Global Security are eligible for
trading in the PORTAL Market to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in such
Debentures will, therefore, be required by the Depositary to be settled in
immediately available funds. The Company expects that secondary trading in the
Certificated Securities also will be settled in immediately available funds.
Registration Rights; Liquidated Damages
Pursuant to a registration rights agreement dated as of August 26, 1997 (the
"Registration Rights Agreement") the Company agreed for the benefit of the
Holders, that (i) it would, at its cost, within 90 days after the closing of the
Debenture Closing (the "Debenture Closing"), file a shelf registration statement
(the "Shelf Registration Statement") with the Commission with respect to resales
of the Debentures and the Shares, (ii) it will use its commercially reasonable
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission within 150 days after the Debenture Closing, and (iii) it will
use its commercially reasonable efforts to keep such Shelf Registration
Statement continuously effective under the Securities Act until, subject to
certain exceptions specified in the Registration Rights Agreement, the second
anniversary of the Debenture Closing. The Company will be permitted to suspend
use of the prospectus that is part of the Shelf Registration Statement during
certain periods of time and in certain circumstances relating to pending
corporate developments and public filings with the Commission and similar
events. If (a) the Company fails to file the Shelf Registration Statement
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) such Shelf Registration Statement is not declared effective
by the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date") or (c) the Shelf Registration Statement is declared
effective but thereafter ceases to be effective in connection with resales of
Transfer Restricted Securities (as defined below) during the periods specified
in the Registration Rights Agreement (each such event referred to in clauses (a)
through (c) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $0.05 per week (such amount to be pro rated on a daily basis) per
$1,000 aggregate principal amount of the Debentures held by such Holder. The
amount of the Liquidated Damages will increase by an additional $0.05 per week
(such amount to be pro rated on a daily basis) per $1,000 aggregate principal
amount of the Debentures held by each Holder with respect to each subsequent 90-
day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $0.25 per week (such amount to be pro rated on a
daily basis) per $1,000 aggregate principal amount of the Debentures held by
each Holder. All accrued Liquidated Damages will be paid by the Company on each
Interest Payment Date in cash. Such payment will be made to the Holder of the
Global Securities by wire transfer of immediately available funds or by federal
funds check and to Holders of Certificated Securities, if any, by wire transfer
to the accounts specified by them or by mailing checks to their registered
addresses if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
For purposes of the foregoing, "Transfer Restricted Securities" means each
Debenture and each Share until the earlier of (i) the date on which such
Debenture or Share has been effectively registered under the Securities Act and
disposed of pursuant to an effective registration statement, (ii) the date on
which such Debenture or Share is distributed to the public pursuant to Rule 144
under the Securities Act (or any similar provision then in effect) or is
saleable pursuant to Rule 144(k) under the Securities Act and all legends
thereon relating to transfer restrictions have been removed, or (iii) the date
on which such Debenture or Share ceases to be outstanding.
Holders of Debentures will be required to deliver information to be used in
connection with the Shelf Registration Statement within time periods set forth
in the Registration Rights Agreement in order to have their
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Debentures or Shares included in the Shelf Registration Statement and benefit
from the provisions regarding Liquidated Damages set forth above.
The Company will provide to each registered holder of the Debentures or the
Shares, who is named in the prospectus and who so requests in writing, copies of
the prospectus which will be a part of such Shelf Registration Statement, notify
each such holder when such Shelf Registration Statement for the Debentures and
Shares has become effective and will take certain other actions as are required
to permit unrestricted resales of the Debentures and Shares. A holder of
Debentures or Shares that sells such securities pursuant to a Shelf Registration
Statement generally will be required to be named as a selling security holder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification and contribution rights and obligations).
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Registration Rights
Agreement. The Registration Rights Agreement is included as an exhibit to the
Registration Statement to which this Prospectus is a part.
Governing Law
The Indenture and Debentures will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to such state's
conflicts of laws principles. (Section 112)
Information Concerning the Trustee
The Company and its subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee in the ordinary course of business.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal income
tax considerations to holders of the Debentures. This discussion is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings, and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations.
This discussion does not deal with all aspects of United States federal income
taxation that may be important to holders of the Debentures or shares of Common
Stock and does not deal with tax consequences arising under the laws of any
foreign, state or local jurisdiction. This discussion is for general
information only, and does not purport to address all tax consequences that may
be important to particular purchasers in light of their personal circumstances,
or to certain types of purchasers (such as certain financial institutions,
insurance companies, tax-exempt entities, dealers in securities or persons who
hold the Debentures or Common Stock in connection with a straddle) that may be
subject to special rules. This discussion assumes that each holder holds the
Debentures and the shares of Common Stock received upon conversion thereof as
capital assets, and that the Debentures are properly characterized as debt
instruments for federal income tax purposes.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any holder
who is not a United States person. The term "United States person" means a
citizen or resident of the United States, a corporation or partnership created
or organized in the United States or any state thereof, an estate the income of
which is includible in income for United States federal income tax purposes
regardless of its source, or a trust subject to primary supervision by a court
in the United States and control by one or more United States fiduciaries.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR OWNERSHIP AND
DISPOSITION OF THE DEBENTURES, INCLUDING CONVERSION OF THE DEBENTURES, AND THE
EFFECT THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
Ownership of the Debentures
Interest on Debentures. Interest on Debentures will be taxable to a holder as
ordinary interest income in accordance with the holder's methods of tax
accounting at the time that such interest is accrued or received. The
Debentures were not issued with original issue discount ("OID") within the
meaning of the Code.
Adjustments to Conversion Price. Adjustments to the conversion price as
provided in the Indenture in most cases will not constitute a taxable event for
a Holder. However, certain corporate transactions, such as distributions of
assets to holders of Common Stock, may cause a deemed, taxable distribution to
the holders of the Debentures when the conversion price is adjusted to reflect
such a transaction.
Sale or Exchange of Debentures or Shares of Common Stock. In general, a
holder of Debentures will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the Debentures measured by the difference
between the amount realized (except to the extent attributable to the payment of
accrued interest) and the holder's adjusted tax basis in the Debentures. A
holder's tax basis in Debentures generally will equal the cost of the Debentures
to the holder, increased by the amount of any market discount previously taken
into income by the holder or decreased by any bond premium amortized by the
holder with respect to the Debentures. (For the basis and holding period of
shares of Common Stock, see "Conversion of Debentures.") In general, each holder
of Common Stock into which the Debentures have been converted will recognize
gain or loss upon the sale, exchange, or other disposition of the Common Stock
under rules similar to those applicable to the Debentures. Subject to the
market discount rules discussed below, the gain or loss on the disposition of
the Debentures or shares of Common Stock generally will be capital gain or loss.
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Conversion of Debentures. A holder of Debentures will not recognize gain or
loss on the conversion of the Debentures into shares of Common Stock, except
upon the receipt of cash in lieu of a fractional share. The holder's tax basis
in the shares of Common Stock received upon conversion of the Debentures will
equal the holder's aggregate basis in the Debentures exchanged therefor (less
any portion thereof allocable to a fractional share). The holding period of the
shares of Common Stock received by the holder upon conversion of Debentures will
include the period during which the holder held the Debentures prior to the
conversion. Cash received in lieu of a fractional share of Common Stock should
be treated as a payment in exchange for such fractional share. Gain or loss
recognized on the receipt of cash paid in lieu of a fractional share generally
will equal the difference between the amount of cash received and the amount of
tax basis allocable to the fractional share.
Market Discount. The resale of Debentures may be affected by the "market
discount" provisions of the Code. Market discount on a Debenture will generally
equal the amount, if any, by which the principal amount of the Debenture exceeds
the holder's acquisition price. Subject to a de minimis exception, these
provisions generally require a holder of a Debenture acquired at a market
discount to treat as ordinary income any gain recognized on the disposition of
such Debenture to the extent of the "accrued market discount" at the time of
disposition. If a Debenture with accrued market discount is converted into
Common Stock pursuant to the conversion feature, the amount of such accrued
market discount generally will be taxable as ordinary income upon disposition of
the Common Stock. Market discount on a Debenture will be treated as accruing on
a straight-line basis over the term of such Debenture or, at the election of the
holder, under a constant-yield method. A holder of a Debenture acquired at a
market discount may be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry the
Debenture until the Debenture is disposed of in a taxable transaction, unless
the holder elects to include market discount in income as it accrues.
Amortizable Premium. A purchaser of a Debenture at a premium over its stated
principal amount, plus accrued interest, generally may elect to amortize such
premium ("Section 171 premium") from the purchase date to the Debenture's
maturity date under a constant-yield method that reflects semiannual compounding
based on the Debenture's payment period. Amortizable premium, however, will not
include any premium attributable to a Debenture's conversion feature. The
premium attributable to the conversion feature is the excess, if any, of the
Debenture's purchase price over what the Debenture's fair market value would be
if there were no conversion feature. Amortized Section 171 premium is treated
as an offset to interest income on a Debenture and not as a separate deduction.
Certain Federal Income Tax Considerations Applicable to Non-U.S. Holders
Interest on Debentures. Generally, interest paid on the Debentures to a Non-
U.S. Holder will not be subject to United States federal income tax if: such
interest is not effectively connected with the conduct of a trade or business
within the United States by such Non-U.S. Holder; the Non-U.S. Holder does not
actually or constructively own 10% or more of the total voting power of all
classes of stock of the Company entitled to vote and is not a "controlled
foreign corporation" with respect to which the Company is a "related person"
within the meaning of the Code; and the beneficial owner, under penalty of
perjury, certifies to the payor that the owner is not a United States person and
provides the owner's name and address. If certain requirements are satisfied,
the certification described above may be provided by a securities clearing
organization, a bank, or other financial institution that holds customers'
securities in the ordinary course of its trade or business. For this purpose,
the holder of Debentures would be deemed to own constructively the Common Stock
into which it could be converted. A holder that is not exempt from tax under
these rules generally will be subject to United States federal income tax
withholding at a rate of 30% unless (i) the interest is effectively connected
with the conduct of a United States trade or business, in which case the
interest will be subject to the United States federal income tax on net income
that applies to United States persons generally, or (ii) an applicable income
tax treaty provides for a lower rate of, or exemption from, withholding tax.
Sale or Exchange of Debentures or Shares of Common Stock. A Non-U.S. Holder
generally will not be subject to United States federal income tax on gain
recognized upon the sale or other disposition of Debentures or shares of Common
Stock unless the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder or, in the case of a
Non-U.S. Holder who is a nonresident alien individual and holds the Common Stock
as a capital asset, such holder is present in the United States for 183 or more
days in the taxable
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year. However, if the Company were to become a "United States real property
holding corporation," a Non-U.S. Holder may be subject to federal income tax
with respect to gain realized on the disposition of Debentures or shares of
Common Stock. In that case, any withholding tax withheld pursuant to the rules
applicable to dispositions of a "United States real property interest" will be
creditable against such Non-U.S. Holder's United States federal income tax
liability and may entitle such Non-U.S. Holder to a refund upon furnishing
required information to the IRS.
Conversion of Debentures. A Non-U.S. Holder generally will not be subject to
United States federal income tax on the conversion of a Debenture into shares of
Common Stock. To the extent a Non-U.S. Holder receives cash in lieu of a
fractional share on conversion, such cash may give rise to gain that would be
subject to the rules described above with respect to the sale or exchange of a
Debenture or Common Stock.
Dividends on Shares of Common Stock. Generally, any distribution on shares of
Common Stock to a Non-U.S. Holder will be subject to United States federal
income tax withholding at a rate of 30% unless (i) the dividend is effectively
connected with the conduct of trade or business within the United States by the
Non-U.S. Holder, in which case the dividend will be subject to the United
States federal income tax on net income that applies to United States persons
generally (and, with respect to corporate holders under certain circumstances,
the branch profits tax), or (ii) an applicable income tax treaty provides for a
lower rate of, or exemption from, withholding tax. A Non-U.S. Holder may be
required to satisfy certain certification requirements in order to claim a
reduction of or exemption from withholding under the foregoing rules.
Information Reporting and Backup Withholding
U.S. Holders. Information reporting and backup withholding may apply to
payments of principal, interest or dividends on or the proceeds of the sale or
other disposition of the Debentures or shares of Common Stock with respect to
certain noncorporate U.S. Holders. Such U.S. Holders generally will be
subject to backup withholding at a rate of 31% unless, among other conditions,
the U.S. Holder supplies a taxpayer identification number, and certain other
information, certified under penalties of perjury, to the payor or otherwise
establishes an exemption from backup withholding. Any amount withheld under
backup withholding is allowable as a credit against the U.S. Holder's federal
income tax.
Non-U.S. Holders. Generally, information reporting and backup withholding of
United States federal income tax at a rate of 31% may apply to payments of
principal, interest and dividends to Non-U.S. Holders if the payee fails to
certify that the holder is a Non-U.S. person. The 31% backup withholding tax
will not apply to interest or dividends subject to the 30% withholding tax
discussed above.
The payment of the proceeds of the disposition of Debentures or shares of
Common Stock to or through the United States office of a United States or
foreign broker will be subject to information reporting and backup withholding
unless the owner provides a required certification or otherwise establishes an
exemption. The proceeds of the disposition by a Non-U.S. Holder of Debentures
or Common Stock to or through a foreign office of a broker generally will not be
subject to backup withholding. However, if the broker is a U.S. person, a
controlled foreign corporation for United States tax purposes, or a foreign
person 50% or more of whose gross income from all sources for certain periods is
from activities that are effectively connected with a United States trade or
business, information reporting generally will apply unless the broker has
documentary evidence in its files of the Non-U.S. Holder's foreign status and
has no actual knowledge to the contrary.
Proposed regulations would modify the information reporting and backup
withholding tax rules for Non-U.S. Holders and, if adopted, generally would be
effective for payments made after December 31, 1997.
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DESCRIPTION OF CAPITAL STOCK
World Airways' authorized capital stock consists of 40,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of preferred
stock, par value $0.001 per share (the "Preferred Stock") of which 8,003,064
shares of Common Stock and no shares of Preferred Stock are outstanding as of
the date hereof. All of the issued and outstanding shares of Common Stock are
fully paid and nonassessable.
The following summary description of World Airways' capital stock accurately
describes the material rights of holders of World Airways' capital stock but
does not purport to be complete and is qualified in its entirety by reference to
World Airways' Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated Bylaws (the "Bylaws").
Common Stock
The holders of validly issued and outstanding shares of Common Stock are
entitled to one vote per share on all matters to be voted upon by stockholders.
At a meeting of stockholders at which a quorum is present, a majority of the
votes cast decides all questions, unless the matter is one upon which a
different vote is required by express provision of law or World Airways'
Certificate of Incorporation or Bylaws. There is no cumulative voting with
respect to the election of directors (or any other matter), but World Airways'
Board of Directors is classified, which means that the holders of a majority of
the shares at a meeting at which a quorum is present can elect all of the
directors of the class then to be elected if they choose to do so, and, in such
event, the holders of the remaining shares would not be able to elect any
directors of that class. Under Delaware law, if WorldCorp owns a majority of
the outstanding Common Stock, WorldCorp will be able to approve certain actions
by written consent without a meeting of the stockholders of World Airways,
subject to (i) WorldCorp's obligation to vote its shares of Common Stock for two
directors nominated by MHS, (ii) to the requirement that one director nominated
by MHS be present to constitute a quorum at a meeting of the Board of Directors
and (iii) the requirement that MHS' approval be obtained for certain actions.
See "Certain Relationships and Transactions."
The holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities.
Subject to the rights of holders of Preferred Stock, if any, in the event of a
liquidation, dissolution or winding up of World Airways, holders of Common Stock
are entitled to participate equally, share for share, in all assets remaining
after payment of liabilities.
Preferred Stock
World Airways' Certificate of Incorporation authorizes the Board of Directors
to issue up to 5,000,000 shares of Preferred Stock in one or more series and to
establish such relative voting, dividend, redemption, liquidation, conversion
and other powers, preferences, rights, qualifications, limitations and
restrictions as the Board of Directors may determine without further approval of
the stockholders of World Airways. The issuance of Preferred Stock by the Board
of Directors could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a person or group to gain control of World Airways.
The issuance of any series of Preferred Stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of World Airways, the then-existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of Preferred Stock. At the date of this Prospectus, there are no
plans, agreements or understandings relative to the issuance of any shares of
Preferred Stock.
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Limitation on Voting by Foreign Owners
The Certificate of Incorporation defines "Foreign Ownership Restrictions" as
applicable provisions of law and regulations relating to ownership or control of
U.S. air carriers (as amended or modified from time to time). Such
restrictions currently require that no more than 25% of the voting stock of
World Airways be owned or controlled, directly or indirectly, by Foreign
Citizens for purposes of the Foreign Ownership Restrictions, and that World
Airways' President and at least two-thirds of its directors be U.S. citizens.
The Certificate of Incorporation and Bylaws provide that no shares of capital
stock may be voted by or at the direction of Foreign Citizens, unless such
shares are registered on the Foreign Stock Record. World Airways' Bylaws
further provide that no shares will be registered on the Foreign Stock Record if
the amount so registered would exceed the Foreign Ownership Restrictions.
Registration on the Foreign Stock Record is made in chronological order based on
the date World Airways receives a written request for registration. MHS owns
approximately 24.9% of the outstanding Common Stock and such shares are
registered on the Foreign Stock Record.
Delaware Law and Certain Charter and Bylaw Provisions
Certain provisions of the General Corporation Law of the State of Delaware and
of World Airways' Certificate of Incorporation and Bylaws, summarized in the
following paragraphs, may be considered to have an anti-takeover effect and may
delay, deter or prevent a tender offer, proxy contest or other takeover attempt
that a stockholder might consider to be in such stockholder's best interest,
including such an attempt as might result in payment of a premium over the
market price for shares held by stockholders.
Delaware Anti-takeover Law. World Airways, a Delaware corporation, is subject
to the provisions of the General Corporation Law of the State of Delaware,
including Section 203. In general, Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an interested stockholder unless: (i) prior to such
date, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; or (ii) upon becoming an interested stockholder, the stockholder
then owned at least 85% of the voting stock, as defined in Section 203; or (iii)
subsequent to such date, the business combination is approved by both the Board
of Directors and by holders of at least 66 2/3% of the corporation's
outstanding voting stock, excluding shares owned by the interested stockholder.
For these purposes, the term "business combination" includes mergers, asset
sales and other similar transactions with an "interested stockholder." An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15% or more of the
corporation's voting stock. Although Section 203 permits a corporation to elect
not to be governed by its provisions, World Airways to date has not made this
election.
Classified Board of Directors. The Certificate of Incorporation provides for
the Board of Directors to be divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the Board
of Directors will be elected each year. Classification of the Board of
Directors expands the time required to change the composition of a majority of
directors and may tend to discourage an acquisition proposal for World Airways.
Moreover, under the General Corporation Law of the State of Delaware, in the
case of corporations having a classified Board of Directors, the stockholders
may remove a director only for cause unless the corporation elects otherwise in
its charter. World Airways' Certificate of Incorporation and Bylaws provide for
removal of directors only with cause.
Special Meetings of Stockholders; Action by Consent. World Airways' Bylaws
provide that special meetings of stockholders may be called only by the Chairman
of the Board of Directors or by the Secretary at the request in writing of a
majority of the members of the Board of Directors of World Airways. World
Airways' Bylaws also provide that any action required to be taken at any annual
or special meeting of stockholders may be taken without a meeting, without prior
notice and without a vote upon the written consent of the minimum number of
stockholders necessary to authorize such action.
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Advance Notice Requirements for Stockholder Proposals and Director
Nominations. World Airways' Bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual or a special meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive office
of World Airways, not less than 60 days prior to the scheduled annual meeting
regardless of any postponements, deferrals or adjournments of the meeting. The
Bylaws also specify certain requirements pertaining to the form and substance of
a stockholder's meeting. These provisions may preclude some stockholders from
making nominations for directors at an annual or special meeting or from
bringing other matters before the stockholders at a meeting.
Indemnification. World Airways' Certificate of Incorporation provides that
directors and officers of World Airways will be indemnified by World Airways to
the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of World Airways.
Limitation of Liability. The Certificate of Incorporation provides that
directors of World Airways will not be personally liable for monetary damages to
World Airways for certain breaches of their fiduciary duty as directors, unless
they violated their duty of loyalty to World Airways or its stockholders, acted
in bad faith, knowingly or intentionally violated the law, authorized illegal
dividends or redemptions or derived an improper personal benefit from their
action as directors. This provision does not affect the availability of
equitable remedies or non-monetary relief, such as an injunction or rescission
for breach of the duty of care. In addition, the provision applies only to
claims against the director arising out of his role as a director and not in any
other capacity (such as an officer or employee of World Airways). Furthermore,
liability of a director for violations of the federal securities laws will not
be limited by this provision. Directors are not, however, liable for monetary
damages arising from decisions involving violations of the duty of care which
could be deemed grossly negligent.
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PLAN OF DISTRIBUTION
The Selling Securityholders may sell all or a portion of the Debentures and
the Shares offered hereby from time to time while the Registration Statement of
which this Prospectus is a part remains effective. Pursuant to the Registration
Rights Agreement, the Company is obligated to maintain the effectiveness of the
Registration Statement for a period of two years from the completion of the
Private Placement or, if shorter, when (i) all the Securities have been sold
pursuant to the Registration Statement, (ii) all the Securities have been
distributed to the public pursuant to Rule 144 under the Securities Act or are
saleable pursuant to Rule 144(k) under the Securities Act or (iii) the date on
which there ceases to be any outstanding Securities. The Selling
Securityholders may sell Debentures or Shares on terms to be determined at the
times of such sales through customary brokerage channels, negotiated
transactions or by a combination of theses methods, at fixed prices that may be
changed, at market prices then prevailing or at negotiated prices then
obtainable. There is no assurance that the Selling Securityholders will sell
any or all of the Debentures or Shares offered pursuant to this Prospectus.
Each of the Selling Securityholders reserves the right to accept and, together
with its agents from time to time, to reject in whole or in part any proposed
purchase of the Debentures or Shares to be made directly or through agents. The
Company will not receive any of the proceeds from the sale of Debentures or
Shares pursuant to this Prospectus. The aggregate proceeds to the Selling
Securityholders from the sale of the Debentures and the Shares offered by the
Selling Securityholders hereby will be the purchase price of such Debentures or
Shares less any discounts or commissions.
The Company has been advised by the Selling Securityholders that the Selling
Securityholders, acting as principals for their own account, may sell Debentures
or Shares from time to time directly to purchasers. Alternatively, the Selling
Securityholders may, from time to time, sell Debentures or Shares through
agents, dealers or underwriters to be designated by the Selling Securityholders
from time to time who may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Securityholders and the
purchasers of the Debentures or Shares for whom they may act as agent. To the
extent required, the aggregate principal amount of the Debentures and the number
of Shares to be sold, the names of the Selling Securityholders, the purchase
price, the name of any agent, dealer or underwriter and any applicable
commissions with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus is a part. The
Selling Securityholders and any agents, broker-dealers or underwriters that
participate with the Selling Securityholders in the distribution of the
Debentures or the Shares may be deemed to be "underwriters" within the meaning
of the Securities Act, in which event any discounts, commissions or concessions
received by such broker-dealers, agents or underwriters and any profit on the
resale of the Debentures or the Shares purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act.
A Selling Securityholder may elect to engage a broker or dealer to effect
sales in one or more of the following transactions: (a) block trades in which
the broker or dealers so engaged will attempt to sell the Securities as agent by
may position and resell a portion of the block as principal to facilitate the
transaction, (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus, and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchases.
In effecting sales, brokers and dealers engaged by Selling Securityholders may
arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from Selling Securityholders in amounts to be
negotiated (and, if such broker-dealer acts as agent for the purchaser of such
Securities, from such purchaser). Broker-dealers may agree with the Selling
Securityholders to sell a specified number of such Securities at a stipulated
price, and, to the extent such broker-dealer is unable to do so acting as agent
for a Selling Securityholder, to purchase as principal any unsold Securities at
the price required to fulfill the broker-dealer commitment to such Selling
Securityholder. Broker-dealers who acquire Securities as principal may
thereafter resell such Securities from time to time in transactions (which may
involve crosses and block transaction and sales to and through other broker-
dealers, including transactions of the nature described above) in the over-the-
counter market or otherwise at prices and on terms then prevailing at the time
of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Securities commissions as described above.
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The Securities originally issued by the Company in the Private Placement
contained legends as to their restricted transferability. Upon the
effectiveness of the Registration Statement of which this Prospectus is a part,
these legends will no longer be necessary. Upon the transfer by the Selling
Securityholders of any of the Securities, new certificates representing such
Securities will be issued to the transferee, free of any such legends.
To comply with the securities laws of certain states, if applicable, the
Debentures and the Shares will be sold in such states only through registered or
licensed brokers or dealers. In addition, in certain states the Debentures and
the Shares may not be offered or sold unless they have been registered or
qualified for sale in such state or an exemption from the registration or
qualification requirement is available and is complied with.
The Company will not receive any of the proceeds from the offering of the
Debentures and Shares by the Selling Securityholders hereby and will pay all
expenses incident to the offering and sale of the Debentures and the Shares to
the public other than underwriting discounts, selling commissions and fees.
Pursuant to the Registration Rights Agreement, the Company and the Selling
Securityholders have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
Prior to the date hereof, there has been no public market for the Debentures
and there can be no assurance regarding the future development of a market for
the Debentures. The Debentures are eligible for trading on the PORTAL Market;
however, no assurance can be given as to the liquidity of, or trading market
for, the Debentures. The Company has been advised by the Initial Purchasers
that they intend to make a market in the Debentures. However, the Initial
Purchasers are not obligated to do so and any market-making activities with
respect to the Debentures may be discontinued at any time without notice.
Accordingly, no assurance can be given as to the liquidity of or the trading
market for the Debentures.
In addition, any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 or rule 144A of the Securities Act may be sold under Rule
144 or Rule 144A rather than pursuant to this Prospectus. There is no assurance
that any Selling Securityholder will sell any or all of the Debentures or Shares
described herein, and any Selling Security Holder may transfer, devise or gift
such securities by other means not described herein.
The Debentures were originally sold to the Initial Purchasers on August 26,
1997 in a private placement at face value less approximately 3% offering
expenses. The Company agreed to indemnify and hold such Initial Purchasers
harmless against certain liabilities under the Securities Act that could arise
in connection with the sale of the Debentures by them. The Company and the
Selling Securityholders are obligated to indemnify each other against certain
liabilities arising under the Securities Act.
For additional information concerning the registration rights of Selling
Securityholders pursuant to which this Registration Statement is filed, see
"Description of the Debentures--Registration Rights; Liquidated Damages."
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for World
Airways by Hunton & Williams, Richmond, Virginia.
EXPERTS
The financial statements and schedule of World Airways as of December 31, 1995
and 1996 and for each of the years in the three-year period ended December 31,
1996, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein and upon the
authority of said firm as experts in accounting and auditing.
72
<PAGE>
AVAILABLE INFORMATION
World Airways is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by World Airways may be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices:
Seven World Trade Center, 13th Floor, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and copies
of such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates. In addition, such material can also be obtained from the
Commission's Web site at http://www.sec.gov. World Airways' Common Stock is
traded on Nasdaq under the symbol "WLDA."
The Company has filed with the Commission the Registration Statement on Form
S-3 under the Securities Act for the offering of the Securities made by this
Prospectus. This Prospectus, filed as part of the Registration Statement, does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information about the Company and
the Securities offered pursuant to this Prospectus, refer to the Registration
Statement and the exhibits and schedules thereto, all of which may be inspected
without charge or copied at the Commission's offices (at the locations described
above) and copies of which may be obtained at prescribed rates from the Public
Reference Section of the Commission (at the locations described above).
Statements made in this Prospectus about the contents of any contract, agreement
or document are not necessarily complete and in each instance reference is made
to the copy of such contract, agreement or document filed as an exhibit to the
Registration Statement and each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed with the Commission by the Company and
are hereby incorporated by reference into this Prospectus: (i) World Airways'
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, (ii)
World Airways' Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997, all filed pursuant to Section 13 or 15(d) of the
Exchange Act, (iii) World Airways Current Reports on Form 8-K dated July 7,
1997, July 14, 1997 and October 2, 1997, and (iv) the description of World
Airways' Common Stock contained in World Airways' Registration Statement on Form
8-A, filed with the Commission on August 8, 1995 pursuant to Section 12 of the
Exchange Act. All other documents filed by World Airways with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of this offering shall be deemed
to be incorporated by reference herein and shall be deemed to be a part hereof
from the date of filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
World Airways will provide without charge to each person to whom a Prospectus
is delivered, on the written or oral request of such person, a copy of any or
all of the documents referred to above which have been or may be incorporated by
reference into this Prospectus, other than certain exhibits to such documents.
Requests for such copies should be directed to: Investor Relations, World
Airways, Inc., 13873 Park Center Road, Suite 490, Herndon, Virginia 20171
(telephone: (703) 834-9200).
73
<PAGE>
================================================================================
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, or any Selling Security
Holder. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, to any person in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that the information contained herein is correct as of any date subsequent to
the date hereof.
---------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................................3
Risk Factors..................................................................11
Use Of Proceeds...............................................................20
Price Range Of Common Stock...................................................20
Price Range Of Debentures.....................................................21
Dividend Policy...............................................................21
Capitalization................................................................22
Selected Financial And Operating Data.........................................23
Management's Discussion And Analysis Of Financial
Conditions And Results Of Operations.......................................25
Business......................................................................35
Management....................................................................46
Certain Relationships And Transactions........................................47
Selling Securityholders.......................................................50
Description Of Debentures.....................................................53
Certain United States Federal Income Tax Consequences.........................65
Description Of Capital Stock..................................................68
Plan Of Distribution..........................................................71
Legal Matters.................................................................72
Experts.......................................................................72
Available Information.........................................................73
Incorporation Of Certain Information By Reference.............................73
================================================================================
================================================================================
$50,000,000
WORLD AIRWAYS, INC.
8% Convertible
Senior Subordinated
Debentures Due 2004
PROSPECTUS
November ___, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be borne by the Registrant in
connection with the issuance and distribution of the securities being registered
hereby other than underwriting discounts and commissions. No portion of such
expenses are to be borne by the Selling Security Holders. All expenses other
than the SEC registration fee and the Nasdaq listing fee are estimated.
<TABLE>
<S> <C>
SEC registration fee.......................................................... $15,152
Nasdaq listing fee............................................................ 17,500
Trustee's fees and expenses................................................... 2,500
Accounting fees and expenses.................................................. 10,000
Legal fees and expenses....................................................... 25,000
"Blue Sky" fees and expenses (including legal fees)........................... 1,000
Costs of printing and engraving............................................... 1,000
Total....................................................................... $72,152
=======
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Registrant's Bylaws effectively provide that the Registrant shall, to the
full extent permitted by Section 145 of the General Corporation Law of the State
of Delaware, as amended from time to time ("Section 145"), indemnify all person
whom it may indemnify pursuant thereto. In addition, the Registrant's Amended
and Restated Certificate of Incorporation eliminates personal liability of its
directors to the full extent permitted by Section 102(b) (7) of the General
Corporation Law of the State of Delaware, as amended from time to time ("Section
102(b) (7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a matter
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation, except
that no indemnification shall be made if such person shall have been adjudged
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that defendant
officers or directors are reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
Section 102(b) (7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.
The Company maintains insurance against liabilities under the Securities Act
of 1933 for the benefit of its officers and directors.
Section 9 of the Registration Rights Agreement (filed as Exhibit 4.3 to this
Registration Statement) provides that the Holders of Transfer Restricted
Securities covered by this Registration statement severally and not jointly will
indemnify and hold harmless the Registrant and each director, officer and
controlling person of the Registrant from and against any liability caused by
any statement or omission in the Registration Statement, in the Prospectus
or in any amendment or supplement thereto, in each case to the extent that the
statement or omission was made in reliance upon and in conformity with written
information furnished to the Registrant by the Holders of Transfer Restricted
Securities covered by this Registration Statement expressly for use therein.
II-1
<PAGE>
Item 16. Exhibits.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, as amended
(Commission File No. 33-95488) filed on August 8, 1995 (the
"Form S-1").
*3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2
of the Form S-1).
4.1 Indenture dated as of August 1, 1997 between the Company and
First Union National Bank, as Trustee (the "Indenture").
4.2 Form of 8% Convertible Subordinated Debenture due 2003
(included in the Indenture).
4.3 Registration Rights Agreement dated as of August 26, 1997 among
the Company and the Initial Purchasers.
4.4 Purchase Agreement dated August 21, 1997 among the Company and
the Initial Purchasers.
5.1 Opinion of Hunton & Williams regarding the legality of the
securities being registered.
12.1 Ratio of Earnings to Fixed Charges
23.1 Consent of Hunton & Williams (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (included on the signature page of this
Registration Statement).
25.1 Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of First Union National Bank.
</TABLE>
___________
* Filed previously
Item 17. Undertakings.
The undersigned Registrant hereby undertakes that, for purpose of determining
any liability under the Securities Act, each filing of the Registrant's annual
report pursuant to section 13(a) or section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby further undertakes:
(1) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-2
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Herndon, Virginia, on November 6,
1997.
WORLD AIRWAYS, INC.
By /s/ Russell L. Ray, Jr.
-------------------------------------
Russell L. Ray, Jr.
President and Chief Executive Officer
Each of the directors and/or officers of World Airways, Inc. whose
signature appears below hereby appoints T. Coleman Andrews III and Russell L.
Ray, Jr. as his attorneys-in-fact to sign in his name and behalf, in any and all
capacities stated below and to file with the Securities and Exchange Commission,
any and all amendments, including post-effective amendments to this registration
statement, making such changes in the registration statement as appropriate, and
generally to do all such things in their behalf in their capacities as officers
and directors to enable World Airways, Inc. to comply with the provisions of the
Securities Act of 1933, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ Russell L. Ray, Jr. Director, President and Chief November 6, 1997
- ------------------------------ Executive Officer
Russell L. Ray, Jr.
/s/ Russell L. Ray, Jr. Principal Financial Officer November 6, 1997
- ------------------------------
Russell L. Ray, Jr.
/s/ Russell L. Ray, Jr. Principal Accounting Officer November 6, 1997
- ------------------------------
Russell L. Ray, Jr.
/s/ T. Coleman Andrews, III Director, Chairman of the Board November 6, 1997
- ------------------------------
T. Coleman Andrews, III
/s/ A. Scott Andrews Director November 6, 1997
- ------------------------------
A. Scott Andrews
Director _____________ ___, 1997
- ------------------------------
Wan Malek Ibrahim
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
Director, Executive Vice President
- ------------------------------ Marketing and Sales _____________ ___, 1997
Ahmad M. Khatib
/s/ Peter M. Sontag Director November 6, 1997
- ------------------------------
Peter M. Sontag
Director
- ------------------------------ _____________ ___, 1997
Lim Kheng Yew
/s/ John C. Backus, Jr. Director November 6, 1997
- ------------------------------
John C. Backus, Jr.
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
4.1 Indenture dated as of August 1, 1997 between the Company and
First Union National Bank, as Trustee (the "Indenture").
4.2 Form of 8% Convertible Subordinated Debenture due 2003 (included in
the Indenture).
4.3 Registration Rights Agreement dated as of August 26, 1997 among
the Company and the Initial Purchasers.
4.4 Purchase Agreement dated August 21, 1997 among the Company and the
Initial Purchasers.
5.1 Opinion of Hunton & Williams regarding the legality of the
securities being registered.
12.1 Ratio of Earnings to Fixed Charges.
23.1 Consent of Hunton & Williams (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (included on the signature page of this
Registration Statement).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of First Union National Bank.
</TABLE>
II-6
<PAGE>
WORLD AIRWAYS, INC.
and
FIRST UNION NATIONAL BANK,
as Trustee
INDENTURE
Dated as of August 1, 1997
$50,000,000
8.0% Convertible Senior Subordinated Debentures due 2004
<PAGE>
Reconciliation and tie between
the Trust Indenture Act of 1939 and Indenture
dated as of August 1, 1997*:
310(a)(1) . . . . . . . . . . . . . . . . . . . . 609
(a)(2). . . . . . . . . . . . . . . . . . . . . 609
(a)(3). . . . . . . . . . . . . . . . . . . . . Not
Applicable
(a)(4). . . . . . . . . . . . . . . . . . . . . Not
Applicable
(a)(5). . . . . . . . . . . . . . . . . . . . . 609
(b). . . . . . . . . . . . . . . . . . . . . 608
(c). . . . . . . . . . . . . . . . . . . . . Not
Applicable
311(a). . . . . . . . . . . . . . . . . . . . . 613
(b). . . . . . . . . . . . . . . . . . . . . 613
(c). . . . . . . . . . . . . . . . . . . . . Not
Applicable
312(a). . . . . . . . . . . . . . . . . . . . . 701,
702(a)
(b). . . . . . . . . . . . . . . . . . . . . 702(b)
(c). . . . . . . . . . . . . . . . . . . . . 702(c)
313(a). . . . . . . . . . . . . . . . . . . . . 703(a)
(b). . . . . . . . . . . . . . . . . . . . . 703(a)
(c). . . . . . . . . . . . . . . . . . . . . 703(a)
(d). . . . . . . . . . . . . . . . . . . . . 703(b)
314(a). . . . . . . . . . . . . . . . . . . . . 704
(a)(4). . . . . . . . . . . . . . . . . . . . . 1004
(b). . . . . . . . . . . . . . . . . . . . . Not
Applicable
(c)(1). . . . . . . . . . . . . . . . . . . . . 102
(c)(2). . . . . . . . . . . . . . . . . . . . . 102
(c)(3). . . . . . . . . . . . . . . . . . . . . Not
Applicable
(d). . . . . . . . . . . . . . . . . . . . . Not
Applicable
(e). . . . . . . . . . . . . . . . . . . . . 102
(f). . . . . . . . . . . . . . . . . . . . . Not
Applicable
315(a). . . . . . . . . . . . . . . . . . . . . 601
(b). . . . . . . . . . . . . . . . . . . . . 602
(c). . . . . . . . . . . . . . . . . . . . . 601
(d). . . . . . . . . . . . . . . . . . . . . 601
(e). . . . . . . . . . . . . . . . . . . . . 514
316(a)(1)(A). . . . . . . . . . . . . . . . . . . 502,
512
(a)(1)(B). . . . . . . . . . . . . . . . . . . . . 513
(a)(2). . . . . . . . . . . . . . . . . . . . . Not
Applicable
(b). . . . . . . . . . . . . . . . . . . . . 508
(c). . . . . . . . . . . . . . . . . . . . . 104(c)
317(a)(1) . . . . . . . . . . . . . . . . . . . . 503
(a)(2). . . . . . . . . . . . . . . . . . . . . 504
<PAGE>
(b). . . . . . . . . . . . . . . . . . . . . 1003
318(a). . . . . . . . . . . . . . . . . . . . . 107
_____________________
* This table shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
TABLE OF CONTENTS
Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Recitals of the Company. . . . . . . . . . . . . . . . . . . . .1
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 101. Definitions. . . . . . . . . . . . . . . . . .1
Act. . . . . . . . . . . . . . . . . . . . . . . . . .2
Affiliate. . . . . . . . . . . . . . . . . . . . . . .2
Agent Member . . . . . . . . . . . . . . . . . . . . .2
Authenticating Agent . . . . . . . . . . . . . . . . .2
Beneficial Owner . . . . . . . . . . . . . . . . . . .2
Board of Directors . . . . . . . . . . . . . . . . . .2
Board Resolution . . . . . . . . . . . . . . . . . . .2
Business Day . . . . . . . . . . . . . . . . . . . . .3
Cedel. . . . . . . . . . . . . . . . . . . . . . . . .3
Certificated Security or Certificated Securities . . .3
Change in Control. . . . . . . . . . . . . . . . . . .3
Closing Date . . . . . . . . . . . . . . . . . . . . .3
Commission . . . . . . . . . . . . . . . . . . . . . .3
Common Stock . . . . . . . . . . . . . . . . . . . . .3
Company. . . . . . . . . . . . . . . . . . . . . . . .3
Company Request or Company Order . . . . . . . . . . .4
Corporate Trust Office . . . . . . . . . . . . . . . .4
Corporation. . . . . . . . . . . . . . . . . . . . . .4
Current Market Price . . . . . . . . . . . . . . . . .4
DTC. . . . . . . . . . . . . . . . . . . . . . . . . .4
Defaulted Interest . . . . . . . . . . . . . . . . . .4
Depositary . . . . . . . . . . . . . . . . . . . . . .4
Euroclear. . . . . . . . . . . . . . . . . . . . . . .4
Event of Default . . . . . . . . . . . . . . . . . . .4
Exchange Act . . . . . . . . . . . . . . . . . . . . .4
Global Security or Global Securities . . . . . . . . .4
Global Securities Legend . . . . . . . . . . . . . . .4
Holder . . . . . . . . . . . . . . . . . . . . . . . .5
Indenture. . . . . . . . . . . . . . . . . . . . . . .5
Initial Purchasers . . . . . . . . . . . . . . . . . .5
Interest Payment Date. . . . . . . . . . . . . . . . .5
Liquidated Damages . . . . . . . . . . . . . . . . . .5
Material Subsidiary. . . . . . . . . . . . . . . . . .5
Maturity . . . . . . . . . . . . . . . . . . . . . . .5
Non-Global Purchasers. . . . . . . . . . . . . . . . .5
Officers' Certificate. . . . . . . . . . . . . . . . .5
Opinion of Counsel . . . . . . . . . . . . . . . . . .5
Outstanding. . . . . . . . . . . . . . . . . . . . . .6
Paying Agent . . . . . . . . . . . . . . . . . . . . .6
Person . . . . . . . . . . . . . . . . . . . . . . . .6
Predecessor Security . . . . . . . . . . . . . . . . .7
Purchase Agreement . . . . . . . . . . . . . . . . . .7
Record Date. . . . . . . . . . . . . . . . . . . . . .7
Redemption Date. . . . . . . . . . . . . . . . . . . .7
<PAGE>
Redemption Price . . . . . . . . . . . . . . . . . . .7
Registration Rights Agreement. . . . . . . . . . . . .7
Regular Record Date. . . . . . . . . . . . . . . . . .7
Regulation S . . . . . . . . . . . . . . . . . . . . .7
Regulation S Permanent Global Security . . . . . . . .7
Regulation S Temporary Global Security . . . . . . . .7
Repurchase Date. . . . . . . . . . . . . . . . . . . .7
Repurchase Event . . . . . . . . . . . . . . . . . . .8
Repurchase Price . . . . . . . . . . . . . . . . . . .8
Resale Restriction Termination Date. . . . . . . . . .8
Responsible Officer. . . . . . . . . . . . . . . . . .8
Restricted Securities Legend . . . . . . . . . . . . .8
Rule 144A. . . . . . . . . . . . . . . . . . . . . . .8
Rule 144A Global Security. . . . . . . . . . . . . . .8
Securities Act . . . . . . . . . . . . . . . . . . . .8
Securities Custodian . . . . . . . . . . . . . . . . .8
Security Register and Security Registrar . . . . . . .8
Senior Indebtedness. . . . . . . . . . . . . . . . . .8
Shelf Registration Statement . . . . . . . . . . . . .9
Special Record Date. . . . . . . . . . . . . . . . . .9
Stated Maturity. . . . . . . . . . . . . . . . . . . .9
Subordinated Indebtedness. . . . . . . . . . . . . . .9
Subsidiary . . . . . . . . . . . . . . . . . . . . . .9
Termination of Trading . . . . . . . . . . . . . . . .9
Trust Indenture Act. . . . . . . . . . . . . . . . . .9
Trustee. . . . . . . . . . . . . . . . . . . . . . . 10
Vice President . . . . . . . . . . . . . . . . . . . 10
SECTION 102. Compliance Certificates and Opinions . . . . 10
SECTION 103. Form of Documents Delivered to Trustee . . . 11
SECTION 104. Acts of Holders; Record Dates. . . . . . . . 11
SECTION 105. Notices, Etc., to Trustee and Company. . . . 12
SECTION 106. Notice to Holders; Waiver. . . . . . . . . . 13
SECTION 107. Conflict with Trust Indenture Act. . . . . . 13
SECTION 108. Effect of Headings and Table of Contents . . 14
SECTION 109. Successors and Assigns . . . . . . . . . . . 14
SECTION 110. Separability Clause. . . . . . . . . . . . . 14
SECTION 111. Benefits of Indenture. . . . . . . . . . . . 14
SECTION 112. Governing Law. . . . . . . . . . . . . . . . 14
SECTION 113. Legal Holidays . . . . . . . . . . . . . . . 14
SECTION 114. No Security Interest Created . . . . . . . . 15
SECTION 115. Limitation on Individual Liability . . . . . 15
ARTICLE TWO SECURITY FORMS. . . . . . . . . . . . . . . . . . 15
SECTION 201. Forms Generally. . . . . . . . . . . . . . . 15
SECTION 202. Form of Face of Security . . . . . . . . . . 18
SECTION 203. Form of Reverse of Global Securities and
Certificated Security. . . . . . . . . . . . . . . . 22
SECTION 204. Form of Trustee's Certificate of
Authentication . . . . . . . . . . . . . . . . . . . 30
ARTICLE THREE THE SECURITIES. . . . . . . . . . . . . . . . . 31
SECTION 301. Title and Terms. . . . . . . . . . . . . . . 31
SECTION 302. Denominations. . . . . . . . . . . . . . . . 32
SECTION 303. Execution, Authentication, Delivery and
Dating . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 304. Registration, Transfer and Exchange. . . . . 33
<PAGE>
SECTION 305. Temporary Securities . . . . . . . . . . . . 37
SECTION 306. Mutilated, Destroyed, Lost and Stolen
Securities . . . . . . . . . . . . . . . . . . . . . 38
SECTION 307. Payment of Interest; Interest Rights
Preserved. . . . . . . . . . . . . . . . . . . . . . 39
SECTION 308. Persons Deemed Owners. . . . . . . . . . . . 41
SECTION 309. Cancellation . . . . . . . . . . . . . . . . 41
SECTION 310. Computation of Interest. . . . . . . . . . . 41
SECTION 311. CUSIP Number . . . . . . . . . . . . . . . . 41
ARTICLE FOUR SATISFACTION AND DISCHARGE . . . . . . . . . . . 42
SECTION 401. Satisfaction and Discharge of Indenture. . . 42
SECTION 402. Repayment to Company . . . . . . . . . . . . 42
ARTICLE FIVE REMEDIES . . . . . . . . . . . . . . . . . . . . 43
SECTION 501. Events of Default. . . . . . . . . . . . . . 43
SECTION 502. Acceleration of Maturity; Rescission and
Annulment. . . . . . . . . . . . . . . . . . . . . . 45
SECTION 503. Collection of Indebtedness and Suits for
Enforcement by Trustee . . . . . . . . . . . . . . . 46
SECTION 504. Trustee May File Proofs of Claim . . . . . . 47
SECTION 505. Trustee May Enforce Claims Without
Possession of Securities . . . . . . . . . . . . . . 48
SECTION 506. Application of Money Collected . . . . . . . 48
SECTION 507. Limitation on Suits. . . . . . . . . . . . . 48
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest and to Convert . . . 49
SECTION 509. Restoration of Rights and Remedies . . . . . 49
SECTION 510. Rights and Remedies Cumulative . . . . . . . 50
SECTION 511. Delay or Omission Not Waiver . . . . . . . . 50
SECTION 512. Control by Holders . . . . . . . . . . . . . 50
SECTION 513. Waiver of Past Defaults. . . . . . . . . . . 51
SECTION 514. Undertaking for Costs. . . . . . . . . . . . 51
ARTICLE SIX THE TRUSTEE . . . . . . . . . . . . . . . . . . . 52
SECTION 601. Certain Duties and Responsibilities. . . . . 52
SECTION 602. Notice of Defaults . . . . . . . . . . . . . 53
SECTION 603. Certain Rights of Trustee. . . . . . . . . . 53
SECTION 604. Not Responsible for Recitals or Issuance of
Securities . . . . . . . . . . . . . . . . . . . . . 54
SECTION 605. May Hold Securities. . . . . . . . . . . . . 55
SECTION 606. Money Held in Trust. . . . . . . . . . . . . 55
SECTION 607. Compensation and Reimbursement . . . . . . . 55
SECTION 608. Disqualification; Conflicting Interests. . . 56
SECTION 609. Corporate Trustee Required; Eligibility. . . 56
SECTION 610. Resignation and Removal; Appointment of
Successor. . . . . . . . . . . . . . . . . . . . . . 57
SECTION 611. Acceptance of Appointment by Successor . . . 58
SECTION 612. Merger, Conversion, Consolidation or
Succession to Business . . . . . . . . . . . . . . . 58
SECTION 613. Preferential Collection of Claims Against
Company. . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 614. Appointment of Authenticating Agent. . . . . 59
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 701. Company to Furnish Trustee Names and
Addresses of Holders . . . . . . . . . . . . . . . . 61
<PAGE>
SECTION 702. Preservation of Information; Communications
to Holders . . . . . . . . . . . . . . . . . . . . . 61
SECTION 703. Reports by Trustee . . . . . . . . . . . . . 62
SECTION 704. Reports by Company . . . . . . . . . . . . . 62
SECTION 705. Rule 144A Information Requirement. . . . . . 62
ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR
LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 801. Company May Consolidate, Etc., Only on
Certain Terms. . . . . . . . . . . . . . . . . . . . 63
SECTION 802. Successor Substituted. . . . . . . . . . . . 63
ARTICLE NINE SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . 64
SECTION 901. Supplemental Indentures Without Consent of
Holders. . . . . . . . . . . . . . . . . . . . . . . 64
SECTION 902. Supplemental Indentures With Consent of
Holders. . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 903. Execution of Supplemental Indentures . . . . 66
SECTION 904. Effect of Supplemental Indentures. . . . . . 66
SECTION 905. Conformity with Trust Indenture Act. . . . . 66
SECTION 906. Reference in Securities to Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . . 66
SECTION 907. Notice of Supplemental Indenture . . . . . . 66
ARTICLE TEN COVENANTS . . . . . . . . . . . . . . . . . . . . 67
SECTION 1001. Payment of Principal, Premium and
Interest . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 1002. Maintenance of Office or Agency . . . . . . 67
SECTION 1003. Money for Security Payments to Be Held in
Trust. . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 1004. Statement by Officers as to Default . . . . 69
SECTION 1005. Existence . . . . . . . . . . . . . . . . . 69
SECTION 1006. Maintenance of Properties . . . . . . . . . 69
SECTION 1007. Payment of Taxes. . . . . . . . . . . . . . 69
SECTION 1008. Waiver of Certain Covenants . . . . . . . . 70
ARTICLE ELEVEN REDEMPTION OF SECURITIES . . . . . . . . . . . 70
SECTION 1101. Right of Redemption . . . . . . . . . . . . 70
SECTION 1102. Applicability of Article. . . . . . . . . . 70
SECTION 1103. Election to Redeem; Notice to Trustee . . . 70
SECTION 1104. Selection by Trustee of Securities to be
Redeemed . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 1105. Notice of Redemption. . . . . . . . . . . . 71
SECTION 1106. Deposit of Redemption Price . . . . . . . . 72
SECTION 1107. Securities Payable on Redemption Date . . . 72
SECTION 1108. Securities Redeemed in Part . . . . . . . . 73
ARTICLE TWELVE SUBORDINATION OF SECURITIES. . . . . . . . . . 73
SECTION 1201. Securities Subordinated to Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . 73
SECTION 1202. Payment Over of Proceeds Upon Dissolution,
Etc. . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 1203. Prior Payment to Senior Indebtedness upon
Acceleration of Securities . . . . . . . . . . . . . 75
SECTION 1204. No Payment When Senior Indebtedness in
Default. . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 1205. Payment Permitted If No Default . . . . . . 76
SECTION 1206. Subrogation to Rights of Holders of Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . 76
<PAGE>
SECTION 1207. Provisions Solely to Define Relative
Rights . . . . . . . . . . . . . . . . . . . . . . . 77
SECTION 1208. Trustee to Effectuate Subordination . . . . 77
SECTION 1209. No Waiver of Subordination Provisions . . . 77
SECTION 1210. Notice to Trustee . . . . . . . . . . . . . 78
SECTION 1211. Reliance on Judicial Order or Certificate
of Liquidating Agent . . . . . . . . . . . . . . . . 78
SECTION 1212. Trustee Not Fiduciary for Holders of
Senior Indebtedness. . . . . . . . . . . . . . . . . 79
SECTION 1213. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights . . . 79
SECTION 1214. Article Applicable to Paying Agents . . . . 79
SECTION 1215. Certain Conversions Deemed Payment. . . . . 79
SECTION 1216. No Suspension of Remedies . . . . . . . . . 80
ARTICLE THIRTEEN CONVERSION OF SECURITIES . . . . . . . . . . 80
SECTION 1301. Conversion Privilege and Conversion
Price. . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 1302. Exercise of Conversion Privilege. . . . . . 81
SECTION 1303. Fractions of Shares . . . . . . . . . . . . 81
SECTION 1304. Adjustment of Conversion Price. . . . . . . 82
SECTION 1305. Notice of Adjustments of Conversion
Price. . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 1306. Notice of Certain Corporate Action. . . . . 88
SECTION 1307. Company to Reserve Common Stock . . . . . . 89
SECTION 1308. Taxes on Conversions. . . . . . . . . . . . 90
SECTION 1309. Covenant as to Common Stock . . . . . . . . 90
SECTION 1310. Cancellation of Converted Securities. . . . 90
SECTION 1311. Effect of Consolidation, Merger or Sale of
Assets . . . . . . . . . . . . . . . . . . . . . . . 90
SECTION 1312. Trustee's Disclaimer. . . . . . . . . . . . 91
ARTICLE FOURTEEN RIGHT TO REQUIRE REPURCHASE. . . . . . . . . 91
SECTION 1401. Right to Require Repurchase . . . . . . . . 91
SECTION 1402. Notice; Method of Exercising Repurchase
Right. . . . . . . . . . . . . . . . . . . . . . . . 92
SECTION 1403. Deposit of Repurchase Price . . . . . . . . 93
SECTION 1404. Securities Not Repurchased on Repurchase
Date . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 1405. Securities Repurchased in Part. . . . . . . 93
SECTION 1406. Certain Definitions . . . . . . . . . . . . 93
<PAGE>
INDENTURE, dated as of August 1, 1997, between WORLD AIRWAYS, INC., a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal executive offices at 13873
Park Center Road, Suite 490, Herndon, Virginia, and FIRST UNION NATIONAL BANK, a
duly organized national banking association existing under the laws of the
United States, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 8.0%
Convertible Senior Subordinated Debentures due 2004 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term
<PAGE>
"generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles as are generally accepted and accepted and adopted by the
Company at the date of this Indenture; and
(4) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms used in Articles Twelve, Thirteen and Fourteen are
defined in such Articles.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Member" has the meaning specified in Section 201.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities.
The term "Beneficial Owner" is determined in accordance with Rule 13d-
3, promulgated by the Commission under the Exchange Act.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York or
the city in which the Corporate Trust Office is located are authorized or
obligated to close by law or executive order.
<PAGE>
"Cedel" means Cedel Bank societe anonyme.
"Certificated Security" or "Certificated Securities" has the meaning
specified in Section 201.
"Change in Control" has the meaning specified in Section 1406.
"Closing Date" means August 26, 1997.
"Commission" means the Securities and Exchange Commission as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this instrument such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Stock" includes any stock of any class of the Company which
has no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company and which is not subject to redemption by the Company. However, subject
to the provisions of Section 1311, shares issuable on conversion of Securities
shall include only shares of the class designated as Common Stock of the Company
at the date of this Indenture or shares of any class or classes resulting from
any reclassification or reclassifications thereof and which have no preference
in respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided, that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee at which, at any particular time, its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 901 East Cary Street, 2nd Floor, Richmond, Virginia 23219, except
that
<PAGE>
with respect to presentation of the Securities for payment or for registration
of transfer or exchange, such term shall mean the office or agency of the
Trustee at which, at any particular time, its corporate agency business shall be
conducted.
"Corporation" means a corporation, association, company, joint-stock
company and business trust.
"Current Market Price" has the meaning specified in Section 1304.
"DTC" has the meaning specified in Section 304.
"Defaulted Interest" has the meaning specified in Section 307.
"Depositary" has the meaning specified in Section 304.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear System.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Global Security" or "Global Securities" means the Regulation S
Temporary Global Security, the Rule 144A Global Security and the Regulation S
Permanent Global Security.
"Global Securities Legend" means the legend set forth in Section 202
under the heading Global Securities Legend.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Initial Purchasers" means Furman Selz LLC and Dillon, Read & Co. Inc.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Liquidated Damages" means any and all liquidated damages payable
pursuant to Section 5 of the Registration Rights
<PAGE>
Agreement.
"Material Subsidiary" means a Subsidiary meeting the definition of
"significant subsidiary" as defined in Section 1-02(w) of Regulation S-X under
the Securities Act.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity thereof or by declaration of
acceleration, redemption or otherwise.
"Non-Global Purchasers" has the meaning specified in Section 201.
"Officers' Certificate" means a certificate, in form reasonably
satisfactory to the Trustee, signed by the Chairman of the Board, the Chief
Executive Officer, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company,
and delivered to the Trustee. One of the officers signing an Officers'
Certificate given pursuant to Section 1004 shall be the principal executive,
financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion, in form reasonably
satisfactory to the Trustee, of counsel, who may be counsel for or an employee
of the Company, and who shall be acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(1) Securities theretofore canceled by the
Trustee or delivered to the Trustee for cancellation;
(2) Securities, or portions thereof, for the payment or
redemption of which moneys in the necessary amount have been
theretofore deposited with the Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities; provided, that if such Securities, or
portions thereof, are to be redeemed, notice of such redemption has
been duly given pursuant to this Indenture or provision for such
notice satisfactory to the Trustee has been made;
(3) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such
<PAGE>
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of and premium, if any, or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Purchase Agreement" means that certain Initial Purchase Agreement
dated August 21, 1997 between the Company and the Initial Purchasers.
"QIB" has the meaning specified in Section 201.
"Record Date" means either a Regular Record Date or a Special Record
Date, as applicable.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
<PAGE>
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture on the applicable Redemption Date.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of August 26, 1997 between the Company and the Initial
Purchasers.
"Regular Record Date," for the interest payable on any Interest
Payment Date means February 11 or August 11 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act of 1933, as
amended.
"Regulation S Permanent Global Security" has the meaning specified in
Section 304.
"Regulation S Temporary Global Security" has the meaning specified in
Section 201.
"Repurchase Date" has the meaning specified in Section 1401.
"Repurchase Event" has the meaning specified in Section 1406.
"Repurchase Price" has the meaning specified in Section 1401.
"Resale Restriction Termination Date" means, with respect to any
Security, the date which is three years after the later of (i) the original
issue date of such Security and (ii) the last date on which the Company or any
Affiliate of the Company was the owner of such Security (or any Predecessor
Security).
"Responsible Officer" means, when used with respect to the Trustee,
any officer of the Trustee with direct responsibility for the administration of
this Indenture or who is otherwise exercising judgment with respect to this
Indenture.
"Restricted Securities Legend" means the legend set forth in Section
202 under the heading Restricted Securities Legend.
"Rule 144A" has the meaning specified in Section 201.
"Rule 144A Global Security" has the meaning specified in Section 201.
"Securities Act" means the Securities Act of 1933, as
<PAGE>
amended, and all rules and regulations promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian
with respect to the Securities in global form, or any successor
entity thereto.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 304.
"Senior Indebtedness" means the principal of and
premium, if any, and interest on (a) all indebtedness of the
Company for money borrowed, whether outstanding on the date of
execution of this Indenture or thereafter created, incurred or
assumed, except any such other indebtedness that by the terms of
the instrument or instruments by which such indebtedness was
created or incurred expressly provides that it (i) is junior in
right of payment to the Securities or (ii) ranks pari passu in
right of payment with the Securities, and (b) any amendments,
renewals, extensions, modifications, refinancings and refundings
of the foregoing. For the purposes of this definition,
"indebtedness for money borrowed" when used with respect to the
Company means (i) any obligation of, or any obligation guaranteed
by, the Company for the repayment of borrowed money (including,
without limitation, fees, penalties or other obligations in
respect thereof), whether or not evidenced by bonds, debentures,
notes or other written instruments and reimbursement obligations
for letters of credit, (ii) any deferred payment obligation of,
or any such obligation guaranteed by, the Company for the payment
of the purchase price of property or assets evidenced by a note
or similar instrument, and (iii) any obligations and other
liabilities (contingent or otherwise) of, or any such obligation
guaranteed by, the Company for the payment of rent or other
amounts under a lease of property or assets which obligation is
required to be classified and accounted for as a capitalized
lease on the balance sheet of the Company under generally
accepted accounting principles.
"Shelf Registration Statement" means the Registration
Statement with respect to the Common Stock the Company is
required to file pursuant to the Registration Rights Agreement.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section
307.
"Stated Maturity," when used with respect to any
Security or any installment of interest thereon, means the date
specified in such Security as the fixed date on which the
principal of such Security or such installment of interest is due
and payable.
"Subordinated Indebtedness" means the principal of and
premium, if any, and interest on all indebtedness of the Company
for money borrowed, whether outstanding on the date of execution
<PAGE>
of this Indenture or thereafter created, incurred or assumed,
that by the terms of the instrument or instruments by which such
indebtedness was created or incurred expressly provides that it
is junior in right of payment to the Securities.
"Subsidiary" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or
indirectly, by the Company or by one or more other Subsidiaries,
or by the Company and one or more other Subsidiaries. For the
purposes of this definition, "voting stock" means stock which
ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock
has such voting power by reason of any contingency.
"Termination of Trading" has the meaning specified in
Section 1406.
"Trust Indenture Act" means the Trust Indenture Act of
1939 as in force at the date as of which this instrument was
executed; provided, however, that in the event the Trust
Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in
the first paragraph of this instrument until a successor Trustee
shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean such
successor Trustee.
"Vice President," when used with respect to the Company
means any vice president, whether or not designated by a number
or a word or words added before or after the title "vice
president."
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the
Trustee to take any action under any provision of this Indenture,
the Company shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in
this Indenture (including any covenants compliance with which
constitutes a condition precedent) relating to the proposed
action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the
case of any such application or request as to which the
furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular
application or request, no additional certificate or opinion need
be furnished.
Every certificate or opinion with respect to compliance
with a condition or covenant provided for in this Indenture shall
<PAGE>
include:
(1) a statement that each individual or firm
signing such certificate or opinion has read such
covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope
of the examination or investigation upon which the
statements or opinions contained in such certificate or
opinion are based;
(3) a statement that, in the opinion of each such
individual or such firm, he has or they have made such
examination or investigation as is necessary to enable
him or them to express an informed opinion as to
whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of
each such individual or such firm, such condition or
covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person,
it is not necessary that all such matters be certified by, or
covered by the opinion of, only one such Person, or that they be
so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one
or several documents.
Any certificate or opinion of an officer of the Company
may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless
such officer knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with
respect to the matters upon which his certificate or opinion is
based are erroneous. Any such certificate or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a
certificate of public officials or upon a certificate or opinion
of, or representations by, an officer or officers of the Company
stating that the information with respect to such factual matters
is in the possession of the Company, unless such counsel knows,
or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute
two or more applications, requests, consents, certificates,
statements, opinions or other instruments under this Indenture,
<PAGE>
they may, but need not, be consolidated and form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this
Indenture to be given or taken by Holders may be embodied in and
evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed
in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby
expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee
and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person
of any such instrument or writing may be proved by the affidavit
of a witness of such execution or by a certificate of a notary
public or other officer authorized by law to take acknowledgments
of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also
constitute sufficient proof of his authority. The fact and date
of the execution of any such instrument or writing, or the
authority of the Person executing the same, may also be proved in
any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by
the Trust Indenture Act, fix any day as the record date for the
purpose of determining the Holders entitled to give or take any
request, demand, authorization, direction, notice, consent,
waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the
Company prior to the first solicitation of a Holder made by any
Person in respect of any such action, or, in the case of any such
vote, prior to such vote, the record date for any such action or
vote shall be the 30th day (or, if later, the date of the most
recent list of Holders required to be provided pursuant to
Section 701) prior to such first solicitation or vote, as the
case may be. With regard to any record date, only the Holders on
such date (or their duly designated proxies) shall be entitled to
give or take, or vote on, the relevant action. Notwithstanding
the foregoing, the Company shall not set a record date for, and
the provisions of this paragraph shall not apply with respect to,
any Act by the Holders pursuant to Section 501, 502 or 512.
(d) The ownership of Securities shall be proved by the
<PAGE>
Security Register.
(e) Any Act of the Holder of any Security shall bind
every future Holder of the same Security and the Holder of every
Security issued upon the registration of transfer therefor or in
exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made
upon such Security.
(f) Without limiting the foregoing, a Holder entitled
hereunder to give or take any action hereunder with regard to any
particular Security may do so with regard to all or any part of
the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such
principal amount.
SECTION 105. Notices, Etc., to Trustee and Company.
Any Act of Holders or other documents provided or
permitted by this Indenture to be made upon, given or furnished
to, or filed with,
(1) the Trustee by any Holder or by the Company
shall be sufficient for every purpose hereunder if
made, given, furnished or filed in writing to or with
the Trustee at its Corporate Trust Office, 901 East
Cary Street, 2nd Floor, Richmond, Virginia 23219
Attention: Corporate Trust, or at any other address
previously furnished in writing to the Holders and the
Company by the Trustee; or
(2) the Company by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and
mailed, first-class postage prepaid, to the Company,
addressed to it at the address of its principal office
specified in the first paragraph of this instrument or
at any other address previously furnished in writing to
the Trustee by the Company.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail,
registered or certified with postage prepaid, if mailed; when
answered back if telexed; when receipt acknowledged, if
telecopied; and the next Business Day after timely delivery to
the courier, if sent by nationally recognized overnight air
courier guaranteeing next day delivery.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of
<PAGE>
any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if made, given, furnished or
filed in writing to each Holder affected by such event, at his
address as it appears in the Security Register, not later than
the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. Where this
Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be
filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon
such waiver. All such notices and communications shall be deemed
to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in
the mail, registered or certified with postage prepaid, if
mailed; when answered back if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to
the courier, if sent by nationally recognized overnight air
courier guaranteeing next day delivery.
In case, by reason of the suspension of or irregular
mail service or by reason of any other cause it shall be
impracticable to give notice by mail, then such notification as
shall be made with the approval of the Trustee shall constitute a
sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts
with the duties imposed by any of Sections 310 through 317,
inclusive, of the Trust Indenture Act through the operation of
Section 318(c) thereof, the imposed duties shall control. If any
provision of this Indenture modifies or excludes any provision of
the Trust Indenture Act that may be so modified or excluded, the
latter provision shall be deemed to apply to this Indenture as so
modified or to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table
of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the
Company and the Trustee shall bind each of their successors and
assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the
Securities shall be invalid, illegal or unenforceable, the
<PAGE>
validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express
or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, the Holders of Securities
and, with respect to Article Twelve, the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy
or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by
and construed in accordance with the laws of the State of New
York, without regard to the principles of conflicts of laws
thereof.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption
Date or Stated Maturity of any Security or the last date on which
a Holder has the right to convert his Securities shall not be a
Business Day, then (notwithstanding any other provision of this
Indenture or of the Securities) payment of interest or principal
and premium if any, or conversion of the Securities need not be
made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Stated
Maturity, or on such last day for conversion; provided, that no
interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date or Stated Maturity, as the case may
be, to the next succeeding Business Day.
SECTION 114. No Security Interest Created.
Nothing in this Indenture or in the Securities, express
or implied, shall be construed to constitute a security interest
under the Uniform Commercial Code or similar legislation, as now
or hereafter enacted and in effect in any jurisdiction where
property of the Company or its Subsidiaries is or may be located.
SECTION 115. Limitation on Individual Liability.
No recourse under or upon any obligation, covenant or
agreement contained in this Indenture or in any Security, or for
any claim based thereon or otherwise in respect thereof, shall be
had against any incorporator, shareholder, officer or director,
as such, past, present or future, of the Company or any successor
corporation, either directly or through the Company, whether by
virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being
expressly understood that this Indenture and the obligations
<PAGE>
issued hereunder are solely corporate obligations, and that no
such personal liability whatever shall attach to, or is or shall
be incurred by, the incorporators, shareholders, officers or
directors, as such, of the Company or any successor Person, or
any of them, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants
or agreements contained in this Indenture or in any Security or
implied therefrom; and that any and all such personal liability
of every name and nature, either at common law or in equity or by
constitution or statute, of, and any and all such rights and
claims against, every such incorporator, shareholder, officer or
director, as such, because of the creation of the indebtedness
hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any
Security or implied therefrom, are hereby expressly waived and
released as a condition of, and as a consideration for, the
execution of this Indenture and the issuance of such Security.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificate of
authentication shall be in substantially the forms set forth in
this Article, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted
by this Indenture, and may have such letters, numbers or other
marks of identification and such legends or endorsements placed
thereon as may be required to comply with any organizational
document, any applicable law or with the rules of any securities
exchange on which the Securities are listed or as may,
consistently herewith, be determined by the officers executing
such Securities, as evidenced by their execution of the
Securities.
(a) Global Securities. The Securities are being
offered and sold by the Company pursuant to the Purchase
Agreement.
The Securities offered and sold to Qualified
Institutional Buyers ("QIBs") in reliance on Rule 144A under the
Securities Act ("Rule 144A"), as provided in the Purchase
Agreement, shall be issued in the form of one or more permanent
global Securities in definitive, fully registered form without
interest coupons with the Global Securities Legend and Restricted
Securities Legend set forth in Section 202 hereto (each, a "Rule
144A Global Security"), which shall be deposited on behalf of the
purchasers of the Securities represented thereby with the
Trustee, at its Corporate Trust Office, as custodian for the
Depositary, and registered in the name of the Depositary or a
nominee of the Depositary, duly executed by the Company and
<PAGE>
authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Rule 144A Global Security may
from time to time be increased or decreased by adjustments made
on the records of the Trustee and the Depositary or its nominee,
as the case may be, as hereinafter provided.
Securities offered and sold in reliance on Regulation
S, as provided in the Purchase Agreement, shall be issued
initially in the form of a single, temporary global Security in
fully registered form without interest coupons with the Global
Securities Legend and Restricted Securities Legend set forth in
Section 202 hereto (the "Regulation S Temporary Global Security")
which shall be deposited on behalf of the purchasers of the
Securities represented thereby with the Trustee, at its Corporate
Trust Office, as custodian for the Depositary, and registered in
the name of the Depositary or the nominee of the Depositary for
the accounts of designated agents holding on behalf of Euroclear
or Cedel, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The aggregate principal amount
of the Regulation S Temporary Global Security may from time to
time be increased or decreased by adjustments made on the records
of the Trustee and the Depositary or its nominee, as the case may
be, as hereinafter provided.
Upon effectiveness of the Shelf Registration Statement,
the Securities resold or transferred pursuant to the prospectus
forming part of the Shelf Registration Statement may be
represented by one or more permanent global Securities in
definitive, fully registered form without interest coupons with
the Global Securities Legend but not the Restricted Securities
Legend set forth in Section 202 hereto, registered in the name of
the Depositary or a nominee of the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of such global
Securities may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary
or its nominee, as the case may be, to reflect transfers of
beneficial interests from the Regulation S Permanent Global
Security and the Rule 144A Global Security, subject to the rules
and procedures of Euroclear and Cedel, as the case may be, and
the Depositary.
(b) Book-Entry Provisions. This Section 201(b) shall
apply only to the Regulation S Temporary Global Security, the
Rule 144A Global Security and the Regulation S Permanent Global
Security (the "Global Securities") deposited with or on behalf of
the Depositary.
The Company shall execute and the Trustee shall, in
accordance with this Section 201(b), authenticate and deliver
initially one or more Global Securities that (i) shall be
registered in the name of Cede & Co. as nominee of the Depositary
and (ii) shall be delivered by the Trustee to the Depositary or
pursuant to the Depositary's instructions or held by the Trustee
<PAGE>
as custodian for the Depositary.
Members of, or participants in, the Depositary ("Agent
Members") shall have no rights under this Indenture with respect
to any Global Security held on their behalf by the Depositary or
by the Trustee as the custodian of the Depositary or under such
Global Security, and the Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of such Global Security for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification,
proxy or other authorization furnished by the Depositary or
impair, as between the Depositary and its Agent Members, the
operation of customary practices of the Depositary governing the
exercise of the rights of a holder of a beneficial interest in
any Global Security.
(c) Certificated Securities. Except as provided in
Section 305, owners of beneficial interests in Global Securities
will not be entitled to receive physical delivery of certificated
Securities. Purchasers of Securities who are not QIBs and did
not purchase Securities sold in reliance on Regulation S under
the Securities Act (referred to herein as the "Non-Global
Purchasers") will receive certificated Securities bearing the
Restricted Securities Legend set forth in Section 202 hereto
("Certificated Securities"). Certificated Securities will bear
the Restricted Securities Legend set forth in Section 202 unless
removed in accordance with Section 304 hereof and may not be
exchanged for a Global Security, or interest therein, at any
time.
After a transfer of any Securities during the period of
the effectiveness of a Shelf Registration Statement with respect
to the Securities, all requirements pertaining to legends on such
Securities will cease to apply, the requirements requiring any
such Security issued to certain holders be issued in global form
will cease to apply, and a certificated Security without legends
will be available to the holder of such Securities who transfers
such Securities pursuant to a prospectus which is part of such
Shelf Registration Statement.
SECTION 202. Form of Face of Security.
GLOBAL SECURITIES LEGEND:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART
FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE
TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF
THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE
DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A
NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS SECURITY IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
<PAGE>
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
RESTRICTED SECURITIES LEGEND:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF
AGREES NOT TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE")
WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED
PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE OR OTHER
TRANSFER IS (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT
OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION
S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (C), (D) OR
(E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION.
WORLD AIRWAYS, INC.
8.0% Convertible Senior Subordinated Debentures due 2004
No.__________ $_________________
World Airways, Inc., a corporation duly organized and
existing under the laws of the State of Delaware (herein called
the "Company," which term includes any successor Person under the
<PAGE>
Indenture hereinafter referred to), for value received, hereby
promises to pay to _________________________, or registered
assigns, the principal sum of _____________ Dollars [or such
greater or lesser amount as indicated on the Schedule of
Exchanges of Securities on the reverse hereof] on August 26,
2004, and to pay interest thereon from the date of original
issuance of Securities pursuant to the Indenture or from and
including the most recent Interest Payment Date to which interest
has been paid or duly provided for, semi-annually on February 26
and August 26 in each year, commencing February 26, 1998, at the
rate of 8.0% per annum, until the principal hereof is paid or
made available for payment and promises to pay any Liquidated
Damages which may be payable pursuant to Section 5 of the
Registration Rights Agreement on the Interest Payment Dates. The
interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be
paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be
February 11 or August 11 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee
or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on
which the Securities may be listed and upon such notice as may be
required by such exchange, all as more fully provided in said
Indenture. Notice of a Special Record Date shall be given to
Holders of Securities not less than 10 days prior to such Special
Record Date. Payment of the principal of, premium, if any,
interest and Liquidated Damages, if any, on the Securities shall
be made (i) in respect of the Global Securities in immediately
available funds to the accounts specified by the Global Security
Holder on or prior to the respective payment dates and (ii) in
respect of Certificated Securities by wire transfer of
immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a
check to each such Holder's registered address.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate seal.
Dated: August 26, 1997 WORLD AIRWAYS, INC.
By______________________________
Attest:
_____________________________
<PAGE>
SECTION 203. Form of Reverse of Global Securities and
Certificated Security.
This Security is one of a duly authorized issue of
Securities of the Company designated as its 8.0% Convertible
Senior Subordinated Debentures due 2004 (herein called the
"Securities"), limited in aggregate principal amount to
$57,500,000 (including Securities issuable pursuant to the
Initial Purchasers' over-allotment option, as provided for in the
Purchase Agreement dated August 21, 1997 between the Company and
the Initial Purchasers), issued and to be issued under an
Indenture, dated as of August 1, 1997 (herein called the
"Indenture"), between the Company and First Union National Bank,
as Trustee (herein called the "Trustee," which term includes any
successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for
a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Indebtedness and the Holders of the Securities
and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
Subject to and upon compliance with the provisions of
the Indenture, the Holder of this Security is entitled, at his
option, at any time on or after the 60th day following the date
of original issuance of Securities pursuant to the Indenture and
on or before the close of business on August 26, 2004, or in case
this Security or a portion hereof is called for redemption, then
in respect of this Security or such portion hereof until and
including, but (unless the Company defaults in making the payment
due upon redemption) not after, the close of business on the
second business day preceding the Redemption Date, to convert
this Security (or any portion of the principal amount hereof
which is $1,000 or an integral multiple thereof), at the
principal amount hereof, or of such portion, into fully paid and
non-assessable whole shares (calculated as to each conversion to
the nearest 1/100th of a share) of Common Stock at a conversion
price of $8.90 per share (or at the current adjusted conversion
price if an adjustment has been made as provided in the
Indenture) by surrender of this Security, duly endorsed or
assigned to the Company or in blank, to the Company at its office
or agency maintained for that purpose pursuant to Section 1002 of
the Indenture, accompanied by written notice to the Company in
the form provided in this Security (or such other notice as is
acceptable to the Company) that the Holder hereof elects to
convert this Security, or if less than the entire principal
amount hereof is to be converted, the portion hereof to be
converted, and, in case such surrender shall be made during the
period from the opening of business on any Regular Record Date
next preceding any Interest Payment Date to the close of business
on such Interest Payment Date (unless this Security or the
portion thereof being converted has been called for redemption),
also accompanied by payment in New York Clearing House funds, or
<PAGE>
other funds acceptable to the Company of an amount equal to the
interest payable on such Interest Payment Date on the principal
amount of this Security then being converted. Subject to the
aforesaid requirement for payment and, in the case of a
conversion after the Regular Record Date next preceding any
Interest Payment Date and on or before such Interest Payment
Date, to the right of the Holder of this Security (or any
Predecessor Security) of record at such Regular Record Date to
receive an installment of interest (with certain exceptions
provided in the Indenture), no payment or adjustment is to be
made upon conversion on account of any interest accrued hereon or
on account of any dividends on the Common Stock issued upon
conversion. No fractional shares or scrip representing fractions
of shares will be issued on conversion, but instead of any
fractional share the Company shall pay a cash adjustment as
provided in the Indenture. The conversion price is subject to
adjustment as provided in the Indenture. In addition, the
Indenture provides that in case of certain consolidations or
mergers to which the Company is a party or the sale or transfer
of all or substantially all of the assets of the Company, the
Indenture shall be amended, without the consent of any Holders of
Securities, so that this Security, if then outstanding, will be
convertible thereafter, during the period this Security shall be
convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon the
consolidation, merger, sale or transfer by a holder of the number
of shares of Common Stock into which this Security might have
been converted immediately prior to such consolidation, merger,
sale or transfer (assuming such holder of Common Stock failed to
exercise any rights of election and received per share the kind
and amount received per share by a plurality of non-electing
shares).
The Securities are subject to redemption upon not less
than 30 and not more than 60 days' notice by mail, at any time on
or after August 26, 2000, as a whole or in part, at the election
of the Company, at the Redemption Prices set forth below
(expressed as percentages of the principal amount), plus accrued
interest to the Redemption Date (subject to the right of Holders
of record on the relevant Regular Record Date to receive interest
due on an Interest Payment Date that is on or prior to the
Redemption Date).
If redeemed during the 12-month period beginning August
26, in the year indicated, the redemption price shall be:
<TABLE>
<CAPTION>
Redemption
Year Price
<S> <C>
2000 104.571%
2001 103.429%
2002 102.286%
2003 101.143%
2004 and thereafter100%
</TABLE>
<PAGE>
In certain circumstances involving the occurrence of a
Repurchase Event (as defined in the Indenture), the Holder hereof
shall have the right to require the Company to repurchase this
Security at 100% of the principal amount hereof, together with
accrued interest to the Repurchase Date, but interest
installments whose Stated Maturity is on or prior to such
Repurchase Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Record Dates referred to on
the face hereof, all as provided in the Indenture.
In the event of redemption or conversion of this
Security in part only, a new Security or Securities for the
unredeemed or unconverted portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
The indebtedness evidenced by this Security is, in all
respects, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness, and this
Security is issued subject to the provisions of the Indenture
with respect thereto. Each Holder of this Security, by accepting
the same, (a) agrees to and shall be bound by such provisions,
(b) authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the
subordination so provided, and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing,
the principal of all the Securities may be declared due and
payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities under the Indenture at any time by the
Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount of the
Securities at the time Outstanding, and, under certain limited
circumstances, by the Company and the Trustee without the consent
of the Holders. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on
behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
<PAGE>
hereof, whether or not notation of such consent or waiver is made
upon this Security.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and premium, if any, and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed or to convert this Security as
provided in the Indenture.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is
registrable in the Security Register, upon surrender of this
Security for registration of transfer at the office or agency of
the Company in any place where the principal of and any premium
and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized
denominations and for the same aggregate principal amount, will
be issued to the designated transferee or transferees.
The Securities are issuable only in fully registered
form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities
of a different authorized denomination, as requested by the
Holder surrendering the same.
No service charge shall be made for any such
registration of transfer or exchange except as provided in the
Indenture, and the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable
in connection therewith.
Prior to due presentment of this Security for
registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name
this Security is registered on the Security Register as the owner
hereof for all purposes, except as provided in this Security,
whether or not this Security be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture. The Company will furnish to any Holder upon written
request and without charge a copy of the Indenture and/or the
Registration Rights Agreement.
<PAGE>
[FORM OF CONVERSION NOTICE]
TO WORLD AIRWAYS, INC.
The undersigned registered owner of this Security
hereby irrevocably exercises the option to convert this Security,
or the portion hereof (which is $1,000 or a multiple thereof)
designated below, into shares of Common Stock in accordance with
the terms of the Indenture referred to in this Security, and
directs that the shares issuable and deliverable upon the
conversion, together with any check in payment for a fractional
share and any Security representing any unconverted principal
amount hereof, be issued and delivered to the registered owner
hereof unless a different name has been provided below. If this
Notice is being delivered on a date after the close of business
on a Regular Record Date and prior to the close of business on
the related Interest Payment Date, this Notice is accompanied by
payment in New York Clearing House funds, or other funds
acceptable to the Company, of an amount equal to the interest
payable on such Interest Payment Date on the principal of this
Security to be converted (unless this Security has been called
for redemption). If shares or any portion of this Security not
converted are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. Any amount required to be paid by the
undersigned on account of interest accompanies this Security.
Dated:
______________________________
______________________________
Signature(s)
NOTICE: Signature(s) must be guaranteed by
an institution which is a participant in the
Securities Transfer Agent Medallion Program
(STAMP) or similar program.
Signature Guarantee
___________________________
<PAGE>
Fill in for registration Principal amount to be
of shares of Common covered (if less than Stock if they
are to be delivered, all):
or Securities if they are to be $______,000
issued, other than to and in
the name of the registered owner:
_________________________________ Social Security or
(Name) other Taxpayer
Identification Number
_________________________________ of owner
(Street Address)
_________________________________
(City, State and zip code)
(Please print name and address)
Register: ___ Common Stock
___ Securities
(Check appropriate line(s)).
<PAGE>
[ASSIGNMENT FORM]
If you the holder want to assign this Security, fill in the form
below and have your signature guaranteed:
I or we assign and transfer this Security to
(Insert assignee's social security or tax ID number)
(Print or type assignee's name, address and zip code) and
irrevocably appoint
agent to transfer this Security on the books of the Company. The
agent may substitute another to act for him.
Date: Your Signature:
__________________________________
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you wish to have this Security purchased by the
Company pursuant to Section 1401 of the Indenture, check the Box:
[ ]
If you wish to have a portion of this Security (which
is $1,000 or an integral multiple thereof) purchased by the
Company pursuant to Section 1401 of the Indenture, state the
amount you wish to have purchased:
$
Date: Your Signature(s):
Tax Identification No.:
(Sign exactly as your name appears on the face of this Security)
Signature Guarantee:
<PAGE>
[FORM OF SCHEDULE OF EXCHANGES OF CERTIFICATED SECURITIES]
The following exchanges of a part of this Global Security
for Certificated Securities have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Signature of
decrease in increase in Amount of this authorized
Principal Principal Global Security signatory of
Amount of this
Global Security Trustee or
Date of Amount of this following such Securities
Exchange Global Security decrease (or increase) Custodian
<S> <C> <C> <C> <C>
1.
2.
3.
4.
5.
</TABLE>
SECTION 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
This is one of the Securities referred to in the
within-mentioned Indenture.
,
------------------------
as Trustee
By
Authorized Signatory
<PAGE>
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may
be authenticated and delivered under this Indenture is limited to
$57,500,000 (including $7,500,000 aggregate principal amount of
Securities that may be sold to the Initial Purchasers by the
Company upon exercise of the over-allotment option granted
pursuant to the Purchase Agreement), except for Securities
authenticated and delivered upon registration of transfer of, or
in exchange for, or in lieu of, other Securities pursuant to
Section 304, 305, 306, 906, 1108, 1302 or 1405.
The Securities shall be known and designated as the
"8.0% Convertible Senior Subordinated Debentures due 2004" of the
Company. Their Stated Maturity shall be August 26, 2004 and they
shall bear interest at the rate of 8.0% per annum, from the date
of original issuance of Securities pursuant to this Indenture or
from the most recent Interest Payment Date to which interest has
been paid or duly provided for, as the case may be, payable semi-
annually on February 26 and August 26, commencing February 26,
1998, until the principal thereof is paid or made available for
payment.
The principal of, premium, if any, interest and
Liquidated Damages, if any, on the Securities shall be payable
(i) in respect of the Global Securities in immediately available
funds to the accounts specified by the Global Security Holder on
or prior to the respective payment dates and (ii) in respect of
Certificated Securities by wire transfer of immediately available
funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such
Holder's address as such address shall appear on the Security
Register.
The Securities shall be subject to the transfer
restrictions set forth in Section 305.
The Securities shall be redeemable as provided in
Article Eleven.
The Securities shall be subordinated in right of
payment to Senior Indebtedness as provided in Article Twelve.
The Securities shall be convertible as provided in
Article Thirteen.
The Securities shall be subject to repurchase at the
option of the Holder as provided in Article Fourteen.
<PAGE>
SECTION 302. Denominations.
The Securities shall be issuable in fully registered
form without coupons and only in denominations of $1,000 and any
integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive
Officer, its President or one of its Vice Presidents, under its
corporate seal or a facsimile thereof reproduced thereon attested
by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures
of individuals who were at any time the proper officers of the
Company shall bind the Company, notwithstanding that such
individuals or any of them have ceased to hold such offices prior
to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution
and delivery of this Indenture, the Company may deliver
Securities executed by the Company to the Trustee for
authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee
in accordance with such Company Order shall, either at one time
or from time to time pursuant to such instructions as may be
described therein, authenticate and deliver such Securities as in
this Indenture provided and not otherwise. Such Company Order
shall specify the amount of Securities to be authenticated and
the date on which the original issue of Securities is to be
authenticated, and shall certify that all conditions precedent to
the issuance of such Securities contained in this Indenture have
been complied with. The aggregate principal amount of Securities
Outstanding at any time may not exceed the amount set forth above
except as provided in Section 306.
Each Security shall be dated the date of its
authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there
appears on such Security a certificate of authentication
substantially in the form provided for herein duly executed by
the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence,
that such Security has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture. The
Trustee may appoint an Authenticating Agent pursuant to the terms
of Section 614.
<PAGE>
SECTION 304. Registration, Transfer and Exchange.
The Company shall cause to be kept at the Corporate
Trust Office of the Trustee a register (the register maintained
in such office and in any other office or agency designated
pursuant to Section 1002 being herein sometimes collectively
referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall
provide for the registration of Securities and of transfers of
Securities. The Security Register shall be in written form or
any other form capable of being converted into written form
within a reasonable time. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided. At all
reasonable times the Security Register shall be open for
inspection by the Company.
The Company initially appoints The Depository Trust
Company ("DTC") to act as depositary (the "Depositary") with
respect to the Global Security(ies).
The Company initially appoints the Trustee to act as
Securities Custodian with respect to the Global Security(ies).
Where Securities are presented to the Security
Registrar or a co-registrar with a request to register a transfer
or to exchange them for an equal principal amount of Securities
of other denominations, the Security Registrar shall register the
transfer or make the exchange if its requirements for such
transactions are met. To permit registrations of transfers and
exchanges, the Company shall issue and deliver to the Trustee and
the Trustee shall, upon receipt of a Company Order as set forth
in Section 303, authenticate Securities at the Security
Registrar's request. No service charge shall be made for any
registration of transfer or exchange (except as otherwise
expressly permitted herein), but the Company or the Trustee may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith
(other than any such transfer tax or similar governmental charge
payable upon exchanges pursuant to Sections 305, 906 or 1108
hereof).
The Company and the Security Registrar shall not be
required to (i) issue, register the transfer of or exchange
Securities during a period beginning at the opening of business
fifteen (15) days before the day of any selection of Securities
for redemption under Section 1104 and ending at the close of
business on the day of selection, (ii) register the transfer or
exchange of any Securities so selected for redemption in whole or
in part, except the unredeemed portion of any Securities being
redeemed in part or (iii) register the transfer of any Securities
surrendered for repurchase pursuant to Article Fourteen.
All Securities issued upon any transfer or exchange of
<PAGE>
Securities in accordance with this Indenture shall be the valid
and binding obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture as the
Securities surrendered upon such registration of transfer or
exchange.
(a) Notwithstanding any provisions to the contrary in
this Indenture, so long as a Global Security remains outstanding
and is held by or on behalf of the Depositary, transfers of a
Global Security, in whole or in part, or of any beneficial
interest therein, shall only be made in accordance with Section
201(b) and this Section 304; provided, however, that beneficial
interests in a Global Security may be transferred to persons who
take delivery thereof in the form of a beneficial interest in the
same Global Security in accordance with the transfer restrictions
set forth in the Restricted Securities Legend and under the
heading "Notice to Investors" in the Offering Memorandum.
(i) Except for transfers or exchanges made in
accordance with any of clauses (ii) through (v) of this
Section 304(a), transfers of a Global Security shall be
limited to transfers of such Global Security in whole, but
not in part, to nominees of the Depositary or to a successor
of the Depositary or such successor's nominee.
(ii) Rule 144A Global Security to Regulation S
Temporary Global Security. If an owner of a beneficial
interest in the Rule 144A Global Security deposited with the
Depositary or the Trustee as custodian for the Depositary
wishes at any time to transfer its interest in such Rule
144A Global Security to a person who is required to take
delivery thereof in the form of an interest in the
Regulation S Temporary Global Security, such owner may,
subject to the rules and procedures of the Depositary,
exchange or cause the exchange of such interest for an
equivalent beneficial interest in the Regulation S Temporary
Global Security. Upon receipt by the Trustee, as Security
Registrar, at its Corporate Trust Office of (1) instructions
from an Agent Member directing the Trustee to credit or
cause to be credited a beneficial interest in the Regulation
S Temporary Global Security in an amount equal to the
beneficial interest in the Rule 144A Global Security to be
exchanged, (2) a written order from an Agent Member
containing information regarding the participant account of
the Depositary and, in the case of a transfer pursuant to
and in accordance with Regulation S, the Euroclear or Cedel
account to be credited with such increase and (3) in the
case of a transfer, a certificate in the form of Exhibit A
attached hereto given by the holder of such beneficial
interest stating that the transfer of such interest has been
made in compliance with the transfer restrictions applicable
to the Global Securities and (A) pursuant to and in
accordance with Regulation S, (B) that the Security being
transferred is not a "restricted security" as defined in
<PAGE>
Rule 144 under the Securities Act, or (C) that the person
transferring such interest reasonably believes that the
person acquiring such interest in the Regulation S Temporary
Global Security is a QIB and is obtaining such beneficial
interest in a transaction meeting the requirements of Rule
144A, the Trustee, as Security Registrar, shall instruct the
Depositary to reduce or cause to be reduced the principal
amount at maturity of the Rule 144A Global Security and to
increase or cause to be increased the principal amount at
maturity of the Regulation S Temporary Global Security by
the aggregate principal amount at maturity of the beneficial
interest in the Rule 144A Global Security to be exchanged,
to credit or cause to be credited to the account of the
person specified in such instructions a beneficial interest
in the Regulation S Temporary Global Security equal to the
reduction in the principal amount at maturity of the Rule
144A Global Security, and to debit or cause to be debited
from the account of the person making such exchange or
transfer the beneficial interest in the Rule 144A Global
Security that is being exchanged or transferred.
(iii) Regulation S Temporary Global Security to Rule
144A Global Security. If an owner of a beneficial interest
in the Regulation S Temporary Global Security deposited with
the Depositary or with the Trustee as custodian for the
Depositary wishes at any time to transfer its interest in
such Regulation S Temporary Global Security to a person who
is required to take delivery thereof in the form of an
interest in the Rule 144A Global Security, such holder may,
subject to the rules and procedures of Euroclear or Cedel,
as the case may be, and the Depositary, exchange or cause
the exchange of such interest for an equivalent beneficial
interest in the Rule 144A Global Security. Upon receipt by
the Trustee, as Security Registrar, at its Corporate Trust
Office of (1) instructions from Euroclear or Cedel, if
applicable, and the Depositary, directing the Trustee, as
Security Registrar, to credit or cause to be credited a
beneficial interest in the Rule 144A Global Security equal
to the beneficial interest in the Regulation S Temporary
Global Security to be exchanged, such instructions to
contain information regarding the participant account with
the Depositary to be credited with such increase, (2) a
written order from an Agent Member containing information
regarding the participant account of the Depositary and (3)
a certificate in the form of Exhibit B attached hereto given
by the owner of such beneficial interest and stating (a)(i)
that the person transferring such interest in the Regulation
S Temporary Global Security reasonably believes that the
person acquiring such interest in the Rule 144A Global
Security is a QIB and is obtaining such beneficial interest
in a transaction meeting the requirements of Rule 144A or
(ii) such transfer is being made pursuant to another
exemption from the registration requirements of the
Securities Act (in which case such certificate must be
<PAGE>
accompanied by an Opinion of Counsel regarding the
availability of such exemption) and (b) that such transfer
is being made in accordance with all applicable securities
laws of any state of the United States or any other
jurisdiction, then Euroclear or Cedel or the Trustee, as
Security Registrar, as the case may be, will instruct the
Depositary to reduce or cause to be reduced the Regulation S
Temporary Global Security and to increase or cause to be
increased the principal amount at maturity of the Rule 144A
Global Security by the aggregate principal amount at
maturity of the beneficial interest in the Regulation S
Temporary Global Security to be exchanged, and the Trustee,
as Security Registrar, shall instruct the Depositary,
concurrently with such reduction, to credit or cause to be
credited to the account of the person specified in such
instructions a beneficial interest in the Rule 144A Global
Security equal to the reduction in the principal amount at
maturity of the Regulation S Temporary Global Security and
to debit or cause to be debited from the account of the
person making such transfer the beneficial interest in the
Regulation S Temporary Global Security that is being
transferred.
(iv) Global Security to Certificated Security. If an
owner of a beneficial interest in a Global Security
deposited with the Depositary or with the Trustee as
custodian for the Depositary wishes at any time to transfer
its interest in such Global Security to a person who is
required to take delivery thereof in the form of a
Certificated Security, such owner may, subject to the rules
and procedures of Euroclear or Cedel, if applicable, and the
Depositary, cause the exchange of such interest for one or
more Certificated Securities of any authorized denomination
or denominations and of the same aggregate principal amount
at maturity. Upon receipt by the Trustee, as Security
Registrar, at its Corporate Trust Office of (1) instructions
from Euroclear or Cedel, if applicable, and the Depositary
directing the Trustee, as Security Registrar, to
authenticate and deliver one or more Certificated Securities
of the same aggregate principal amount at maturity as the
beneficial interest in the Global Security to be exchanged,
such instructions to contain the name or names of the
designated transferee or transferees, the authorized
denomination or denominations of the Certificated Securities
to be so issued and appropriate delivery instructions, (2) a
certificate in the form of Exhibit C attached hereto given
by the owner of such beneficial interest and stating that
the person transferring such interest in such Global
Security reasonably believes that the person acquiring the
Certificated Securities for which such interest is being
exchanged is an "accredited investor" (as defined in Rule
501(a)(1), (2), (3), (5), (6) or (7) of Regulation D under
the Securities Act) and is acquiring such Certificated
Securities for its own account or for one or more accounts
<PAGE>
as to which the transferee exercises sole investment
discretion, (3) a certificate in the form of Exhibit D
attached hereto given by the person acquiring the
Certificated Securities for which such interest is being
exchanged, to the effect set forth therein, and (4) such
other certifications, legal opinions or other information as
the Company may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or in
a transaction not subject to, the registration requirements
of the Securities Act, then Euroclear or Cedel, if
applicable, or the Trustee, as Security Registrar, as the
case may be, will instruct the Depositary to reduce or cause
to be reduced such Global Security by the aggregate
principal amount at maturity of the beneficial interest
therein to be exchanged and to debit, or cause to be debited
from the account of the person making such transfer the
beneficial interest in the Global Security that is being
transferred, and concurrently with such reduction and debit
the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Certificated
Securities of the same aggregate principal amount at
maturity in accordance with the instructions referred to
above. The Company shall advise the Trustee in writing of
any certifications, legal opinions or other information
required pursuant to clause (4) above.
(v) Certificated Security to Certificated Security.
If a holder of a Certificated Security wishes at any time to
transfer such Certificated Security to a person who is
required to take delivery thereof in the form of a
Certificated Security, such holder may, subject to the
restrictions on transfer set forth herein and in such
Certificated Security, cause the exchange of such
Certificated Security for one or more Certificated
Securities of any authorized denomination or denominations
and of the same aggregate principal amount at maturity.
Upon receipt by the Trustee, as Security Registrar, at its
Corporate Trust Office of (1) such Certificated Security,
duly endorsed as provided herein, (2) instructions from such
holder directing the Trustee, as Security Registrar, to
authenticate and deliver one or more Certificated Securities
of the same aggregate principal amount at maturity as the
Certificated Security to be exchanged, such instructions to
contain the name or authorized denomination or denominations
of the Certificated Securities to be so issued and
appropriate delivery instructions, (3) a certificate from
the holder of the Certificated Security to be exchanged in
the form of Exhibit C attached hereto, (4) a certificate in
the form of Exhibit D attached hereto given by the person
acquiring the Certificated Securities for which such
interest is being exchanged, to the effect set forth
therein, and (5) such other certifications, legal opinions
or other information as the Company may reasonably require
to confirm that such transfer is being made pursuant to an
<PAGE>
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then the
Trustee, as Security Registrar, shall cancel or cause to be
canceled such Certificated Security and concurrently
therewith, the Company shall execute, and the Trustee shall
authenticate and deliver, one or more Certificated
Securities of the same aggregate principal amount at
maturity, in accordance with the instructions referred to
above. The Company shall advise the Trustee in writing of
any certifications, legal opinions or other information
required pursuant to clause (5) above.
(vi) Certificated Security for Global Security. A
Certificated Security may not be transferred or exchanged
for a beneficial interest in a Global Security.
(vii) Other Exchanges. In the event that a beneficial
interest in a Global Security is exchanged for Securities in
definitive registered form pursuant to Section 305, prior to
the effectiveness of a Shelf Registration Statement with
respect to such Securities, such Securities may be exchanged
only in accordance with such procedures as are substantially
consistent with the provisions of clauses (ii) through (v)
above (including the certification requirements intended to
ensure that such transfers comply with Rule 144A or
Regulation S under the Securities Act, as the case may be)
and such other procedures as may from time to time be
adopted by the Company.
(viii) Restricted Period. Prior to the termination of
the "restricted period" (as defined in Regulation S under
the Securities Act) with respect to the issuance of the
Securities, transfers of interests in the Regulation S
Temporary Global Security to "U.S. persons" (as defined in
Regulation S under the Securities Act) shall be limited to
transfers made pursuant to the provisions of Section
304(a)(iii). The Company shall advise the Trustee in
writing as to the termination of the restricted period and
the Trustee may rely conclusively thereon.
(ix) Regulation S Temporary Global Security to
Regulation S Permanent Global Security. Following the
termination of the "restricted period" (as defined in
Regulation S under the Securities Act) with respect to the
issuance of the Securities, beneficial interests in the
Regulation S Temporary Global Security shall be exchanged
for an interest in a Global Security in definitive, fully
registered form without interest coupons, with the Global
Securities Legend set forth in Section 202 hereto, but
without the Restricted Securities Legend (a "Regulation S
Permanent Global Security"), pursuant to the rules and
procedures of the Depositary; provided, however, that prior
to (i) the payment of interest or principal with respect to
<PAGE>
a holder's beneficial interest in the Regulation S Temporary
Global Security and (ii) any exchange of such beneficial
interest for a beneficial interest in the Regulation S
Permanent Global Security, Euroclear or Cedel receives a
certificate substantially in the form of Exhibit E hereto
from the beneficial owner of such beneficial interest and
Euroclear and Cedel deliver a certificate substantially in
the form of Exhibit F hereto to the Trustee (or the paying
agent if different from the Trustee). Upon proper
presentment to the Trustee of a certificate substantially in
the form of Exhibit G hereto and subject to the rules and
procedures of DTC or its direct or indirect participants,
including Euroclear and Cedel, an interest in a Regulation S
Permanent Global Security may be exchanged for a
Certificated Security that is free from any restriction on
transfer (other than such as are solely attributable to any
holder's status).
(b) Except in connection with a Shelf Registration
Statement contemplated by and in accordance with the terms of the
Registration Rights Agreement, if Securities are issued upon the
transfer, exchange or replacement of Securities bearing the
Restricted Securities Legend set forth in Section 202 hereto, or
if a request is made to remove such Restricted Securities Legend
on Securities, the Securities so issued shall bear the Restricted
Securities Legend, or the Restricted Securities Legend shall not
be removed, as the case may be, unless there is delivered to the
Company such satisfactory evidence, which may include an opinion
of counsel licensed to practice law in the State of New York, as
may be reasonably required by the Company, that neither the
legend nor the restrictions on transfer set forth therein are
required to ensure that transfers thereof comply with the
provisions of Rule 144A, Rule 144 or Regulation S under the
Securities Act or, with respect to Certificated Securities, that
such Securities are not "restricted" within the meaning of Rule
144 under the Securities Act. Upon provision of such
satisfactory evidence, the Trustee, upon receipt of a Company
Order as set forth in Section 303, shall authenticate and deliver
Securities that do not bear the legend.
(c) Neither the Company nor the Trustee shall have any
responsibility for any actions taken or not taken by the
Depositary, any Agent Member, Euroclear or Cedel.
SECTION 305. Temporary Securities.
(a) Until definitive Securities are ready for
delivery, the Company may prepare and execute and the Trustee,
upon receipt of a Company Order as set forth in Section 303,
shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of definitive Securities but
may have variations that the Company considers appropriate for
temporary Securities (as conclusively evidenced by its execution
of such Securities). Without unreasonable delay, the Company
<PAGE>
shall prepare and execute and the Trustee, upon receipt of a
Company Order as set forth in Section 303, shall authenticate
definitive Securities in exchange for temporary Securities.
Until so exchanged, the temporary Securities shall in all
respects be entitled to the same benefits under this Indenture as
definitive Securities.
(b) A Global Security deposited with the Depositary or
with the Trustee as custodian for the Depositary pursuant to
Section 201 shall be transferred to the beneficial owners thereof
in the form of Certificated Securities only if such transfer
complies with Section 304 and (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary
for such Global Security or if at any time such Depositary ceases
to be a "clearing agency" registered under the Exchange Act and a
successor depositary is not appointed by the Company within 90
days of such notice, or (ii) an Event of Default has occurred and
is continuing.
(c) Any Global Security that is transferable to the
beneficial owners thereof in the form of Certificated Securities
pursuant to this Section 305 shall be surrendered by the
Depositary to the Trustee at its drop facility in the borough of
Manhattan specified in Section 1002, to be so transferred, in
whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of
each portion of such Global Security, an equal aggregate
principal amount at maturity of Securities of authorized
denominations in the form of Certificated Securities. Any
portion of a Global Security transferred pursuant to this Section
shall be executed, authenticated and delivered only in
denominations of $1,000 and any integral multiple thereof and
registered in such names as the Depositary shall direct. Any
Security in the form of Certificated Securities delivered in
exchange for an interest in the Rule 144A Global Security shall,
except as otherwise provided by Section 304(b), bear the
Restricted Securities Legend set forth in Section 202 hereto.
Any Security in the form of Certificated Securities delivered in
exchange for an interest in the Regulation S Temporary Global
Security shall, except as otherwise provided by Section 304(b)
bear the Restricted Securities Legend set forth in Section 202
hereto.
(d) Subject to the provisions of Section 305(c), the
registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and
persons that may hold interests through Agent Members, to take
any action which a Holder is entitled to take under this
Indenture or the Securities.
(e) In the event of the occurrence of either of the
events specified in Section 305(b), the Company will promptly
make available to the Trustee a reasonable supply of Certificated
Securities in definitive, fully registered form without interest
<PAGE>
coupons.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the
Trustee, the Company shall execute and, upon receipt of a Company
Order as set forth in Section 303, the Trustee shall authenticate
and deliver in exchange therefor a new Security of like tenor and
principal amount and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and the
Trustee (i) evidence to their satisfaction of the destruction,
loss or theft of any Security and (ii) such security or indemnity
as may be required by them to save each of them and any agent of
either of them harmless, then, in the absence of written notice
to the Company or a Responsible Officer of the Trustee that such
Security has been acquired by a bona fide purchaser, the Company
shall execute and the Trustee, upon receipt of a Company Order as
set forth in Section 303, shall authenticate and deliver, in lieu
of any such destroyed, lost or stolen Security, a new Security of
like tenor and principal amount and bearing a number not
contemporaneously outstanding. The Trustee may charge the
Company for the Trustee's expenses in replacing such Security.
In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, the
Company in its discretion may, instead of issuing a new Security,
pay such Security.
Upon the issuance of any new Security under this
Section, the Company or the Trustee may require the payment of a
sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected
therewith.
Every new Security issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security shall constitute
an original additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Security shall be at
any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies
with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment
<PAGE>
Date shall be paid to the Persons in whose name that Security (or
one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest. Payment
of interest on the Securities shall be made (i) in respect of the
Global Securities in immediately available funds to the accounts
specified by the Global Security Holder on or prior to the
respective payment dates and (ii) in respect of Certificated
Securities by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account
is specified, by mailing a check to each such Holder's address as
such address shall appear on the Security Register.
Any interest on any Security which is payable, but is
not punctually paid or duly provided for, on any Interest Payment
Date (herein called "Defaulted Interest") shall forthwith cease
to be payable to the Holder on the relevant Regular Record Date
by virtue of having been such Holder, and such Defaulted Interest
may be paid by the Company, at its election in each case, as
provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the
Securities (or their respective Predecessor Securities)
are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest
which shall be fixed in the following manner: The
Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on
each Security and the date of the proposed payment, and
at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate
amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this Clause provided.
Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the
notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor
to be mailed, first-class postage prepaid, to each
Holder at his address as it appears in the Security
Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or
<PAGE>
their respective Predecessor Securities) are registered
at the close of business on such Special Record Date
and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent
with the requirements of any securities exchange on
which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after
notice given by the Company in writing to the Trustee
of the proposed payment pursuant to this Clause, such
manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section,
each Security delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Security
shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
In the case of any Security which is converted after
any Regular Record Date and on or prior to the next succeeding
Interest Payment Date (other than any Security whose Maturity is
prior to such Interest Payment Date), interest whose Stated
Maturity is on such Interest Payment Date shall be payable on
such Interest Payment Date notwithstanding such conversion, and
such interest (whether or not punctually paid or duly provided
for) shall be paid to the Person in whose name that Security (or
one or more Predecessor Securities) is registered at the close of
business on such Regular Record Date, provided, however, that
Securities so surrendered for conversion shall (except in the
case of Securities or portions thereof called for redemption) be
accompanied by payment in New York Clearing House funds or other
funds acceptable to the Company of an amount equal to the
interest payable on such Interest Payment Date on the principal
amount being surrendered for conversion. Except as otherwise
expressly provided in the immediately preceding sentence, in the
case of any Security which is converted, interest whose Stated
Maturity is after the date of conversion of such Security shall
not be payable.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration
of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name such
Security is registered as the owner of such Security for the
purpose of receiving payment of principal of and premium, if any,
and (subject to Section 307) interest on such Security and for
all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of
the Company or the Trustee shall be affected by notice to the
contrary.
<PAGE>
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer, exchange or conversion shall, if surrendered to any Person other than
the Trustee, be delivered to, and promptly canceled by, the Trustee. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities held by
the Trustee shall be disposed of as directed by a Company Order.
SECTION 310. Computation of Interest.
Interest on the Securities of each series shall be computed on the
basis of a 360-day year of twelve 30-day months.
SECTION 311. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number, and if
so, such CUSIP number shall be included in notices of redemption, repurchase or
exchange as a convenience to holders of Securities; provided, however, that any
such notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed in the notice or on the Securities and that
reliance may be placed only on the other identification numbers printed on the
Securities. The Company will promptly notify the Trustee in writing of any
change in the CUSIP number.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further
effect (except that the Company's obligations under Sections 607 and 402 hereof
shall survive), and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when (A) all Securities theretofore authenticated and delivered (other than (i)
Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 306 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 1003) have been delivered to the Trustee for
cancellation; (B) the Company has paid or caused to
<PAGE>
be paid all other sums payable hereunder by the Company; and (C) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with.
SECTION 402. Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company
upon request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request
any money held by them for the payment of principal of, or interest or
Liquidated Damages (if any) on, the Securities that remains unclaimed for two
years after the date upon which such payment shall have become due; provided,
however, that the Company shall have first caused notice of such payment to the
Company to be mailed by first-class mail to each Holder entitled thereto at such
Holder's last known address no less than 30 days prior to such payment. The
Company and the Trustee shall have no further liability or obligation to advise
Holders. After payment to the Company, the Trustee and the Paying Agent shall
have no further liability with respect to such money and Holders entitled to the
money must look to the Company for payment as general creditors unless any
applicable abandoned property law designates another person.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Twelve or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body);
(1) default in the payment of the principal of or premium, if
any, on any Security at its Maturity, whether or not such payment is
prohibited by the provisions of Article Twelve; or
(2) default in the payment of any interest or Liquidated Damages,
if any, on any Security when it becomes due and payable, whether or
not such payment is prohibited by the provisions of Article Twelve,
and continuance of such default for a period of 30 days; or
<PAGE>
(3) failure to provide timely notice of a Repurchase Event as
required in accordance with the provisions of Article Fourteen; or
(4) default in the payment of the Repurchase Price in respect of
any Security on the Repurchase Date therefor in accordance with the
provisions of Article Fourteen, whether or not such payment is
prohibited by the provisions of Article Twelve; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere
in this Section specifically dealt with), and continuance of such
default or breach for a period of 60 days after there has been given,
by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25 % in
principal amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(6) a default under any bond, debenture, note or other evidence
of indebtedness for money borrowed by the Company or any Subsidiary or
under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness
for money borrowed by the Company or any Subsidiary, whether such
indebtedness now exists or shall hereafter be created, which default
shall constitute a failure to pay the principal of indebtedness in
excess of $5,000,000 when due and payable after the expiration of any
applicable grace period with respect thereto or shall have resulted in
indebtedness in excess of $5,000,000 becoming or being declared due
and payable prior to the date on which it would otherwise have become
due and payable, without such indebtedness having been discharged, or
such acceleration having been rescinded or annulled, within a period
of 30 days after there shall have been given, by registered or
certified mail, to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities a written notice specifying such default and
requiring the Company to cause such indebtedness to be discharged or
cause such acceleration to be rescinded or annulled and stating that
such notice is a "Notice of Default" hereunder; or
(7) the entry by a court having jurisdiction in the premises of
(A) a decree or order for relief in respect of the Company or any
Material Subsidiary in an
<PAGE>
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company or any Material Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or
in respect of the Company or any Material Subsidiary under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Company or any Material Subsidiary or of any substantial part
of its property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a period of
90 consecutive days; or
(8) the commencement by the Company or any Material Subsidiary of
a voluntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by it to the entry of a decree or order for relief in
respect of the Company or any Material Subsidiary in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement
of any bankruptcy or insolvency case or proceeding against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under any applicable Federal or State law, or the consent by
it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Material
Subsidiary or of any substantial part of its property, or the making
by it of a general assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally
as they become due, or the taking of corporate action by the Company
or any Material Subsidiary in furtherance of any such action.
Upon receipt by the Trustee of any Notice of Default pursuant to
subparagraph (5) or (6) this Section 501, a record date shall automatically and
without any other action by any Person be set for the purpose of determining the
Holders of Outstanding Securities entitled to join in such Notice of Default,
which record date shall be the close of business on the day the Trustee receives
such Notice of Default. The Holders of Outstanding Securities on such record
date (or their duly appointed agents), and only such Persons, shall be entitled
to
<PAGE>
join in such Notice of Default, whether or not such Holders remain Holders after
such record date; provided, however, that unless such Notice of Default shall
have become effective by virtue of the Holders of the requisite principal amount
of Outstanding Securities on such record date (or their duly appointed agents)
having joined therein on or prior to the 90th day after such record date, such
Notice of Default shall automatically and without any action by any Person be
canceled and of no further force or effect.
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than as specified in subparagraph (7) or
(8) of Section 501) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by Holders), and upon any such declaration the principal of,
premium, if any, and interest accrued on the Securities to the date of
declaration and Liquidated Damages, if any, shall become immediately due and
payable. If an Event of Default specified in subparagraph (7) or (8) of Section
501 occurs and is continuing, then the principal of, premium, if any, and
accrued and unpaid interest and Liquidated Damages, if any, on all of the
Securities shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of
Securities.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of and premium, if any, on any Securities
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the
Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the
Securities, and
<PAGE>
(D) all sums paid or advanced by the Trustee and each
predecessor Trustee, their respective agents and counsel
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee and each predecessor
Trustee, their respective agents and counsel and any other
amounts due the Trustee or any predecessor Trustee under Section
607;
and
(2) all Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the Securities that has
become due solely by such declaration of acceleration, have been cured
or waived as provided in Section 513.
No such rescission and waiver shall affect any subsequent default or impair any
right consequent thereon.
Upon receipt by the Trustee of any declaration of acceleration, or any
rescission and annulment of any such declaration, pursuant to this Section 502,
a record date shall automatically and without any other action by any Person be
set for the purpose of determining the Holders of Outstanding Securities
entitled to join in such declaration, or rescission and annulment, as the case
may be, which record date shall be the close of business on the day the Trustee
receives such declaration, or rescission and annulment, as the case may be. The
Holders of Outstanding Securities on such record date (or their duly appointed
agents), and only such Persons, shall be entitled to join in such declaration,
or rescission and annulment, as the case may be, whether or not such Holders
remain Holders after such record date; provided, that unless such declaration,
or rescission and annulment, as the case may be, shall have become effective by
virtue of Holders of the requisite principal amount of Outstanding Securities on
such record date (or their duly appointed agents) having joined therein on or
prior to the 90th day after such record date, such declaration, or rescission
and annulment, as the case may be, shall automatically and without any action by
any Person be canceled and of no further force or effect.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of
<PAGE>
the principal of (or premium, if any, on) any Security at the Maturity
thereof,
the Company will pay to the Trustee, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities for
principal and premium, if any, and interest, and, to the extent that payment of
such interest shall be legally enforceable, interest on any overdue principal
and premium, if any, and on any overdue interest, at the rate borne by the
Securities, and, in addition thereto, such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee and each
predecessor Trustee, their respective agents and counsel, and any other amounts
due the Trustee or any predecessor Trustee under Section 607.
If the Company fails to pay such amounts, the Trustee, in its own name
and as trustee of an express trust may institute a judicial proceeding for the
collection of the sums so due and unpaid and may prosecute any such proceeding
to judgment or final decree, and may enforce the same against the Company (or
any other obligor upon such Securities) and collect the moneys adjudged or
decreed to be payable in the manner provided by law out of the property of the
Company (or any other obligor upon such Securities), wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any
other obligor upon the Securities), its property or its creditors, the Trustee
shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have the claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it and
each predecessor Trustee for the reasonable compensation, expenses,
disbursements
<PAGE>
and advances of the Trustee and each predecessor Trustee and their respective
agents and counsel, and any other amounts due the Trustee or any predecessor
Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and may be a member of the
creditors' committee.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee and each predecessor Trustee and their
respective agents and counsel, be for the ratable benefit of the Holders of the
Securities in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or premium, if
any, or interest, upon presentation of the Securities and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To payment of all amounts due the Trustee under Section
607;
SECOND: Subject to Article Twelve, to the holders of Senior
Indebtedness;
THIRD: To the payment of the amounts then due and unpaid for
principal of and premium, if any, and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal and premium, if any, and interest, respectively; and
<PAGE>
FOURTH: The balance, if any, to the Company or to whomsoever may
be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest and to Convert.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and (subject to Section
307) interest and Liquidated Damages (if any) on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
the Redemption Date or, in the case of a repurchase pursuant to Article
Fourteen, on the Repurchase Date)
<PAGE>
and to convert such Security in accordance with Article Thirteen and to
institute suit for the enforcement of any such payment and right to convert, and
such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 306, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders.
The Holders of at least a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, provided, that
(1) such direction shall not be in conflict with any rule of law
or with this Indenture; and
<PAGE>
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; and
(3) subject to the provisions of Section 601, the Trustee shall
have the right to decline to follow any such direction if the Trustee
in good faith shall determine that the action so directed would
involve the Trustee in personal liability or would be unduly
prejudicial to Holders not joining in such direction.
Upon receipt by the Trustee of any such direction, a record date shall
automatically and without any other action by any Person be set for the purpose
of determining the Holders of Outstanding Securities entitled to join in such
direction, which record date shall be the close of business on the day the
Trustee receives such direction. The Holders of Outstanding Securities on such
record date (or their duly appointed agents), and only such Persons, shall be
entitled to join in such direction, whether or not such Holders remain Holders
after such record date; provided, however, that unless such direction shall have
become effective by virtue of Holders of the requisite principal amount of
Outstanding Securities on such record date (or their duly appointed agents)
having joined therein on or prior to the 90th day after such record date, such
direction shall automatically and without any action by any Person be canceled
and of no further force or effect.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of or premium, if any, or
interest on any Security, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may
<PAGE>
require any party litigant in such suit to file an undertaking to pay the costs
of such suit, and may assess costs against any such party litigant, in the
manner and to the extent provided in the Trust Indenture Act; provided, however,
that neither this Section nor the Trust Indenture Act shall be deemed to
authorize any court to require such an undertaking or to make such an assessment
in any suit instituted by the Company, in any suit instituted by the Trustee, a
suit by a Holder pursuant to Section 508, or a suit by a Holder or Holders of
more than 10% in principal amount of the outstanding Securities.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by
this Indenture and the Trust Indenture Act for securities issued pursuant to
indentures qualified thereunder. Except as otherwise provided herein,
notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability or risk in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity satisfactory to it
against such risk or liability is not reasonably assured to it. Whether or not
therein expressly so provided, every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Section. The Trustee shall not be
liable (x) for any error of judgment made in good faith by a Responsible Officer
or Responsible Officers of the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts or (y) with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of the holders of not less than a majority in aggregate principal
amount of the Securities at the time Outstanding relating to the time, method
and place of conducting any proceeding or any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Indenture. Prior to the occurrence of an Event of Default and after the curing
or waiving of all Events of Default which may have occurred: (i) the duties and
obligations of the Trustee shall be determined solely by the express provisions
of this Indenture and in the Trust Indenture Act, and the Trustee shall not be
liable except for the performance of such duties and obligations as are
specifically set forth in this Indenture and in the Trust Indenture Act, and no
implied covenants or obligations shall be read in to this Indenture against the
Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of
<PAGE>
the statements and the correctness of the opinions therein, upon any statements,
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture and believed by the Trustee to be genuine and to
have been signed or presented by the proper party or parties; but in the case of
any such statements, certificates or opinions which by any provisions hereof are
specifically required to be furnished to the Trustee, the Trustee shall be under
a duty to examine the same to determine whether or not they conform on their
face to the requirements of this Indenture. If an Event of Default has occurred
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder
known to it as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(5), no such notice to Holders shall be given until at least 30 days after
the Trustee has knowledge thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default. For purposes of Section 502, Section 601 and
this Section 602, the Trustee shall not be deemed to have knowledge of a default
or an Event of Default hereunder unless a Responsible Officer of the Trustee has
actual knowledge thereof, or unless written notice of any event which is a
default or an Event of Default is received by the Trustee and such notice
references the Securities or this Indenture.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this
<PAGE>
Indenture the Trustee shall deem it desirable that a matter be proved
or established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon an
Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) before the Trustee acts or refrains from acting with respect
to any matter contemplated by this Indenture, it may require an
Officers' Certificate or an Opinion of Counsel, which shall conform to
the provisions of Section 102, and the Trustee shall be protected and
shall not be liable for any action it takes or omits to take in good
faith and without gross negligence in reliance on such certificate or
opinion;
(g) the Trustee shall not be required to give any bond or surety
in respect of the performance of its power and duties hereunder;
(h) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(i) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
<PAGE>
appointed with due care by it hereunder;
(j) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; and
(k) the Trustee shall have no duty to inquire as to the
performance of the Company's covenants herein.
SECTION 604. Not Responsible for Recitals or Issuance of
Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificate of authentication, shall be taken as the statements of the
Company, and neither the Trustee nor any Authenticating Agent assumes any
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee or any Paying Agent in trust hereunder need
not be segregated from other funds except to the extent required by law. The
Trustee or any Paying Agent shall be under no liability for interest on any
money received by it hereunder.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (including its
services as Security Registrar or Paying Agent, if so appointed by the
Company) as may be mutually agreed upon in writing by the Company and
the Trustee (which compensation shall not be limited by any provision
of law in regard to the compensation of a trustee of an express
trust);
<PAGE>
(2) except as otherwise expressly provided herein, to reimburse
the Trustee and each predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by or
on behalf of it in connection with the performance of its duties under
any provision of this Indenture (including the reasonable compensation
and the expenses and disbursements of its agents and counsel and all
other persons not regularly in its employ) except to the extent any
such expense, disbursement or advance may be attributable to its gross
negligence or bad faith; and
(3) to indemnify the Trustee and each predecessor Trustee and
each of their respective officers, directors, employees , attorneys-
in-fact and agents (each an "indemnitee") for, and to hold it harmless
against, any loss, liability or expense incurred without gross
negligence or bad faith on its part, arising out of or in connection
with the offer and sale of the securities and the acceptance or
administration of this Indenture or the trusts hereunder and its
duties hereunder (including its services as Security Registrar or
Paying Agent, if so appointed by the Company), including enforcement
of this Section 607 and including the costs and expenses of defending
itself against or investigating any claim or liability in connection
with the exercise or performance of any of its powers or duties
hereunder. The Company shall defend any claim or threatened claim
asserted against an indemnitee for which it may seek indemnity, and
the indemnitee shall cooperate in the defense unless, in the
reasonable opinion of the indemnitee's counsel, the indemnitee has an
interest adverse to the Company or a potential conflict of interest
exists between the indemnitee and the Company, in which case the
indemnitee may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; provided, however, that
the Company shall only be responsible for the reasonable fees and
expenses of one law firm (in addition to local counsel) in any one
action or separate substantially similar actions in the same
jurisdiction arising out of the same general allegations or
circumstances, such law firm to be designated by the indemnitee.
As security for the performance of the obligations of the Company
under this Section 607, the Trustee shall have a lien prior to the Securities
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the benefit of the Holders of particular Securities, and
the Securities are hereby subordinated to such prior lien. The obligations of
the Company under this Section to compensate and indemnify the Trustee and any
predecessor Trustee and each of their respective officers, directors, employees,
attorneys-in-
<PAGE>
fact and agents and to pay or reimburse the Trustee and any
predecessor Trustee for expenses, disbursements and advances, and
any other amounts due the Trustee or any predecessor Trustee
under Section 607, shall constitute an additional obligation
hereunder and shall survive the resignation or removal of the
Trustee and the satisfaction and discharge of this Indenture.
When the Trustee or any predecessor Trustee incurs
expenses or renders services in connection with the performance
of its obligations hereunder (including its services as Security
Registrar or Paying Agent, if so appointed by the Company) after
an Event of Default specified in Section 501(7) or (8) occurs,
the expenses and the compensation for the services are intended
to constitute expenses of administration under any applicable
bankruptcy, insolvency or other similar federal or state law to
the extent provided in Section 503(b)(5) of Title 11 of the
United States Code, as now or hereafter in effect.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting
interest within the meaning of the Trust Indenture Act, the
Trustee shall either eliminate such interest or resign, to the
extent and in the manner provided by, and subject to the
provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which
shall be a Person that (i) is eligible pursuant to the Trust
Indenture Act to act as such and (ii) has (or, in the case of a
corporation included in a bank holding company system, whose
related bank holding company has) a combined capacity and surplus
of at least $50,000,000. If such Person publishes reports of
conditions at least annually, pursuant to law or to the
requirements of a Federal or state supervising or examining
authority, then for the purposes of this Section, the combined
capital and surplus of such Person shall be deemed to be its
combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of
this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the
successor Trustee in accordance with the applicable requirements
of Section 611.
(b) The Trustee may resign at any time by giving
written notice thereof to the Company. If an instrument of
<PAGE>
acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the resigning Trustee within 30 days
after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(c) The Trustee may be removed at any time by an Act
of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section
608 after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a
Security for the last six months, or
(2) the Trustee shall cease to be eligible under
Section 609 and shall fail to resign after written
request therefor by the Company or by any such Holder,
or
(3) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs
for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company by a Board Resolution may
remove the Trustee, or (ii) subject to Section 514, any Holder
who has been a bona fide Holder of a Security for at least six
months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee and such successor Trustee
shall comply with the applicable requirements of Section 611.
If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor
Trustee shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the
Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of
Section 611 become the successor Trustee and supersede the
successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the
<PAGE>
Holders and accepted appointment in the manner required by
Section 611, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation
and each removal of the Trustee and each appointment of a
successor Trustee to all Holders in the manner provided in
Section 106. Each notice shall include the name of the successor
Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall
execute, acknowledge and deliver to the Company and to the
retiring Trustee an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but,
on request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver
an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder. Upon
request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers
and trusts.
No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor Trustee
shall be qualified and eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or
converted or with it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which
the Trustee shall be a party, or any corporation succeeding to
all or substantially all the corporate trust bwsiness of the
Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and
eligible under this Article, without the execution or filing of
any paper or any further act on the part of any of the parties
hereto. In case any Securities shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by
merger, conversion or consolidation to such authenticating
Trustee may adopt such authentication and deliver the Securities
so authenticated with the same effect as if such successor
Trustee had itself authenticated such Securities.
<PAGE>
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor
of the Company (or any other obligor upon the Securities), the
Trustee shall be subject to the provisions of the Trust Indenture
Act regarding the collection of such claims against the Company
(or any such other obligor).
SECTION 614. Appointment of Authenticating Agent
The Trustee may appoint an Authenticating Agent or
Agents acceptable to and at the expense of the Company which
shall be authorized to act on behalf of the Trustee to
authenticate Securities issued upon original issue and upon
exchange, registration of transfer, partial conversion or partial
redemption or pursuant to Section 306, and Securities so
authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of
Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed
on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall
at all times be a Person organized and doing business under the
laws of the United States of America, any State thereof or the
District of Columbia, authorized under such laws to act as
Authenticating Agent, having a combined capital and surplus of
not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Authenticating
Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published.
If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and
with the effect specified in this Section.
Any Person into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any
Person resulting from any merger, conversion or consolidation to
which such Authenticating Agent shall be a party, or any Person
succeeding to the corporate agency or corporate trust business of
an Authenticating Agent, shall continue to be an Authenticating
Agent, provided such Person shall be otherwise eligible under
this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating
Agent.
<PAGE>
An Authenticating Agent may resign at any time by
giving written notice thereof to the Trustee and to the Company.
The Trustee may at any time terminate the agency of an
Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at
any time such Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, the Trustee may
appoint a successor Authenticating Agent which shall be
acceptable to the Company and shall mail notice of such
appointment by first-class mail, postage prepaid, to all Holders
as their names and addresses appear in the Security Register.
Any successor Authenticating Agent upon acceptance of its
appointment under this Section shall become vested with all the
rights, powers and duties of its predecessor hereunder, with like
effect as if originally named as an Authenticating Agent. No
successor Authenticating Agent shall be appointed unless eligible
to act as such under the provisions of this Section.
Any Authenticating Agent by the acceptance of its
appointment shall be deemed to have represented to the Trustee
that it is eligible for appointment as Authenticating Agent under
this Section and to have agreed with the Trustee that: it will
perform and carry out the duties of an Authenticating Agent as
herein set forth, including among other things the duties to
authenticate Securities when presented to it in connection with
the original issuance and with exchanges, registrations of
transfer or redemptions or conversions thereof or pursuant to
Section 306; it will keep and maintain, and furnish to the
Trustee from time to time as requested by the Trustee,
appropriate records of all transactions carried out by it as
Authenticating Agent and will furnish the Trustee such other
information and reports as the Trustee may reasonably require;
and it will notify the Trustee promptly if it shall cease to be
eligible to act as Authenticating Agent in accordance with the
provisions of this Section. Any Authenticating Agent by the
acceptance of its appointment shall be deemed to have agreed with
the Trustee to indemnify the Trustee against any loss, liability
or expense incurred by the Trustee and to defend any claim
asserted against the Trustee by reason of any acts or failures to
act of such Authenticating Agent, but such Authenticating Agent
shall have no liability for any action taken by it in accordance
with the specific written direction of the Trustee.
The Trustee shall not be liable for any act or any
failure of the Authenticating Agent to perform any duty either
required herein or authorized herein to be performed by such
person in accordance with this Indenture.
The Company agrees to pay to each Authenticating Agent
from time to time reasonable compensation for its services under
this Section.
If an appointment is made pursuant to this Section, the
<PAGE>
Securities may have endorsed thereon, in addition to the
Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities described in the within-
mentioned Indenture.
FIRST UNION NATIONAL BANK
As Trustee
By
------------------------
As Authenticating Agent
By
------------------------
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders.
The Company will furnish or cause to be furnished to
the Trustee
(a) semi-annually, not more than 15 days after
each Regular Record Date, a list, in such form as the
Trustee may reasonably require, of the names and
addresses of the Holders as of such Regular Record
Date, and
(b) at such other times as the Trustee may
request in writing, within 30 days after the receipt by
the Company of any such request, a list of similar form
and content as of a date not more than 15 days prior to
the time such list is furnished.
Notwithstanding the foregoing, so long as the Trustee is the
Security Registrar, no such list shall be required to be
furnished.
SECTION 702. Preservation of Information; Communications to
Holders.
(a) The Trustee shall preserve, in as current a
form as is reasonably practicable, the names and
addresses of Holders contained in the most recent list
furnished to the Trustee as provided in Section 701 and
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the names and addresses of Holders received by the
Trustee in its capacity as Security Registrar. The
Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so
furnished.
(b) The rights of Holders to communicate with
other Holders with respect to their rights under this
Indenture or under the Securities, and the
corresponding rights and duties of the Trustee, shall
be as provided by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and
holding the same, agrees with the Company and the
Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable
by reason of any disclosure of information as to the
names and addresses of the Holders made pursuant to the
Trust Indenture Act or otherwise in accordance with
this Indenture.
SECTION 703. Reports by Trustee.
(a) Not later than 60 days following each May 15
the Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this
Indenture as may be required pursuant to the Trust
Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of each such report shall, at the time
of such transmission to Holders, be filed by the
Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the
Company. The Company will notify the Trustee when any
Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the
Commission, and transmit to Holders, such information, documents
and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant to such Act; provided, however, that any
such information, documents or reports required to be filed with
the Commission pursuant to Section 13 or 15(d) of the Exchange
Act shall be filed with the Trustee within 15 days after the same
is so required to be filed with the Commission.
SECTION 705. Rule 144A Information Requirement.
If at any time prior to the Resale Restriction
Termination Date the Company is no longer subject to Section 13
or 15(d) of the Exchange Act, the Company will furnish to the
<PAGE>
Holders or beneficial holders of the Securities and prospective
purchasers of the Securities designated by the Holders of the
Securities, upon their request, information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act
until the earlier of (i) the date on which the Securities and the
underlying Common Stock are registered under the Securities Act
or (ii) the Resale Restriction Termination Date.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain
Terms.
The Company shall not consolidate with or merge into
any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, unless:
(1) in case the Company shall consolidate with or
merge into another Person or convey, transfer or lease
all or substantially all of its properties and assets
to any Person, the Person formed by such consolidation
or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases,
all or substantially all of the properties and assets
of the Company shall be a corporation, limited
liability company partnership or trust, shall be
organized and validly existing under the laws of the
United States of America, any State thereof or the
District of Columbia and shall expressly assume, by an
indenture supplemental hereto, executed and delivered
to the Trustee, in form satisfactory to the Trustee,
the due and punctual payment of the principal of and
premium, if any, and interest on all the Securities and
the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights
in accordance with Section 1311;
(2) immediately after giving effect to such
transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an
Event of Default, shall have happened and be
continuing; and
(3) such consolidation, merger, conveyance,
transfer or lease does not adversely affect the
validity or enforceability of the Securities; and
(4) the Company or the successor Person has
delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such
<PAGE>
consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in
connection with such transaction, such supplemental
indenture comply with this Article and that all
conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger
of the Company into, any other Person or any conveyance, transfer
or lease of all or substantially all of the properties and assets
of the Company in accordance with Section 801, the successor
Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made
shall succeed to, and be substituted for, and may exercise every
right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the
Company herein, and thereafter, except in the case of a lease,
the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time
and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any
of the following purposes:
(1) to cause this Indenture to be qualified under
the Trust Indenture Act; or
(2) to evidence the succession of another Person
to the Company and the assumption by any such successor
of the covenants of the Company herein and in the
Securities; or
(3) to add to the covenants of the Company for
the benefit of the Holders or an additional Event of
Default, or to surrender any right or power conferred
herein or in the Securities upon the Company; or
(4) to secure the Securities; or
(5) to make provision with respect to the
conversion rights of Holders pursuant to the
requirements of Section 1311; or
(6) to evidence and provide for the acceptance of
<PAGE>
appointment hereunder by a successor Trustee with
respect to the Securities; or
(7) to cure any ambiguity, to correct or
supplement any provision herein or in the Securities
which may be defective or inconsistent with any other
provision herein or in the Securities, or to make any
other provisions with respect to matters or questions
arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture;
provided, however, that such action pursuant to this
Clause (7) shall not adversely affect the interests of
the Holders in any material respect and the Trustee may
rely upon an Opinion of Counsel to that effect.
SECTION 902. Supplemental Indentures With Consent of Holders.
With the consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities, by
Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Indenture or
modifying in any manner the rights of the Holders under this
Indenture; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding
Security affected thereby,
(1) change the Stated Maturity of the principal
of, or any installment of interest on, any Security, or
reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the
redemption thereof, or change the place of payment
where, or the coin or currency in which, any Security
or any premium or interest thereon is payable, or
impair the right to institute suit for the enforcement
of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the
Redemption Date), or adversely affect the right to
convert any Security as provided in Article Thirteen
(except as permitted by Section 901(5)), or modify the
provisions of Article Fourteen, or the provisions of
this Indenture with respect to the subordination of the
Securities, in a manner adverse to the Holders, or
(2) reduce the percentage in principal amount of
the Outstanding Securities, the consent of whose
Holders is required for any such supplemental
indenture, or the consent of whose Holders is required
for any waiver of compliance with certain provisions of
this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture, or
<PAGE>
(3) make any change in Section 513, Section 508
or Section 902 hereof (including this sentence), or
(4) modify any of the provisions of this Section
or Section 513, except to increase any such percentage
or to provide that certain other provisions of this
Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security
affected thereby; provided, however, that this Clause
shall not be deemed to require the consent of any
Holder with respect to changes in the references to
"the Trustee" and concomitant changes in this Section,
or the deletion of this proviso, in accordance with the
requirements of Section 901(6).
It shall not be necessary for any Act of Holders under
this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act
shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts
created by, any supplemental indenture permitted by this Article
or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject
to Section 601) shall be fully protected in relying upon, an
Officers' Certificate and an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under
this Article, this Indenture shall be modified in accordance
therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this
Article shall conform to the requirements of the Trust Indenture
Act.
SECTION 906. Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article
<PAGE>
may, and shall if required by the Trustee, bear a notation in
form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental
indenture may be prepared and executed by the Company and, upon
receipt of a Company Order as set forth in Section 303,
authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Notice of Supplemental Indenture.
Promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to Section 902,
the Company shall transmit to the Holders a notice setting forth
the substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal
of and premium, if any, interest, Liquidated Damages (if any) on
the Securities in accordance with the terms of the Securities and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in New York, New York an
office or agency (which may be a drop facility) where Securities
may be presented or surrendered for payment, where Securities may
be surrendered for registration of transfer, where Securities may
be surrendered for exchange or conversion and where notices and
demands to or upon the Company in respect of the Securities and
this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in
the location, of any such office or agency. If at any time the
Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or
more other offices or agencies where the Securities may be
presented or surrendered for any or all such purposes and may
from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or
agency in New York, New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation
<PAGE>
or rescission and of any change in the location of any such other
office or agency. The Company hereby designates the Trustee c/o
First Union National Bank, 40 Broad Street, Fifth Floor, Suite
550, New York, New York 10004 as such drop facility in compliance
with this Section 1002.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying
Agent, it will, on or before each due date of the principal of
and premium, if any, or interest on any of the Securities,
segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal and
premium, if any, or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein
provided and will promptly notify the Trustee in writing of its
action or failure so to act.
Whenever the Company shall have one or more Paying
Agents, it will, on or prior to 11:00 a.m. (New York City time)
on each due date of the principal of and premium, if any, or
interest on any Securities, deposit with a Paying Agent a sum in
same day funds sufficient to pay the principal and any premium
and interest so becoming due, such sum to be held as provided by
the Trust Indenture Act, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee in writing
of its action or failure so to act.
The Company will cause each Paying Agent other than the
Trustee or the Company to execute and deliver to the Trustee an
instrument in which such Paying Agent shall agree with the
Trustee, subject to the provisions of this Section, that such
Paying Agent will (i) comply with the provisions of the Trust
Indenture Act and this Indenture applicable to it as a Paying
Agent and hold all sums held by it for the payment of principal
of or any premium or interest on the Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(ii) give the Trustee written notice of any default by the
Company (or any other obligor upon the Securities) in the making
of any payment in respect of the Securities; and (iii) at any
time during the continuance of any default by the Company (or any
other obligor upon the Securities) in the making of any payment
in respect of the Securities, upon the written request of the
Trustee, forthwith pay to the Trustee all sums held in trust by
such Paying Agent for payment in respect of the Securities, and
account for any funds disbursed.
The Company may at any time, for the purpose of
obtaining the satisfaction and discharge of this Indenture or for
any other purpose, pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by
<PAGE>
the Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying
Agent, or then held by the Company, in trust for the payment of
the principal of and premium, if any, or interest on any Security
and remaining unclaimed for two years after such principal and
premium, if any, or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of
such Security shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability
of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in
a newspaper published in the English language, customarily
published on each Business Day and of general circulation in New
York, New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less
than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the
Company.
SECTION 1004. Statement by Officers as to Default
The Company will deliver to the Trustee, within 120
days after the end of each fiscal year of the Company ending
after the date hereof, an Officers' Certificate stating whether
or not to the best knowledge of the signers thereof the Company
is in default in the performance and observance of any of the
terms, provisions and conditions of this Indenture (without
regard to any period of grace or requirement of notice provided
hereunder) and, if the Company shall be in default, specifying
all such defaults and the nature and status thereof of which they
may have knowledge.
SECTION 1005. Existence.
Subject to Article Eight, the Company will do or cause
to be done all things necessary to preserve and keep in full
force and effect its existence, rights (charter and statutory)
and franchises and the existence, rights (charter and statutory)
and franchises of each Subsidiary; provided, however, that the
Company shall not be required to preserve any such right or
franchise if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 1006. Maintenance of Properties.
<PAGE>
The Company will cause all buildings and equipment
owned by it to be maintained and kept in such condition, repair
and working order as in the judgment of the Company may be
necessary in the interest of its business and that of its
Subsidiaries; provided, however, that nothing in this Section
shall prevent the Company from selling, abandoning or otherwise
disposing of, or discontinuing the operation or maintenance of,
any of such properties if such action is, in the judgment of the
Company, desirable in the conduct of its business or the business
of any Subsidiary and in compliance with Article Eight.
SECTION 1007. Payment of Taxes.
The Company will pay or discharge or cause to be paid
or discharged, before the same shall become delinquent, all
taxes, assessments and governmental charges levied or imposed
upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, which, if unpaid,
might by law become a lien upon the property of the Company or
any Subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged
any such tax, assessment or governmental charge whose amount,
applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 1008. Waiver of Certain Covenants.
The Company may omit in any particular instance to
comply with any covenant or condition set forth in Sections 1005
to 1007 inclusive, if before the time for such compliance the
Holders of at least a majority in principal amount of the
Outstanding Securities shall, by Act of such Holders, either
waive such compliance in such instance or generally waive
compliance with such covenant or condition, but no such waiver
shall extend to or affect such covenant or condition except to
the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties
of the Trustee in respect of any such covenant or condition shall
remain in full force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
The Securities may be redeemed at the election of the
Company, in whole or from time to time in part, at any time on or
after August 26, 2000, at the Redemption Prices specified in the
form of Security hereinbefore set forth, together with accrued
interest, to the Redemption Date.
SECTION 1102. Applicability of Article.
<PAGE>
Redemption of Securities at the election of the Company
as permitted by any provision of this Indenture shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities
pursuant to Section 1101 shall be evidenced by a Board
Resolution. In case of any redemption at the election of the
Company of less than all the Securities, the Company shall, at
least 60 days prior to the Redemption Date fixed by the Company
(unless a shorter period shall be satisfactory to the Trustee),
notify the Trustee in writing of such Redemption Date and of the
principal amount of Securities to be redeemed and shall deliver
to the Trustee such documentation and records as shall enable the
Trustee to select the Securities to be redeemed pursuant to
Section 1104. In case of any redemption at the election of the
Company of all of the Securities, the Company shall, at least 45
days prior to the Redemption Date fixed by the Company (unless a
shorter period shall be satisfactory to the Trustee), notify the
Trustee in writing of such Redemption Date.
SECTION 1104. Selection by Trustee of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more
than 60 days prior to the Redemption Date by the Trustee, from
the Outstanding Securities not previously called for redemption,
by lot or pro rata or by such other method as the Trustee shall
deem fair and appropriate and which may provide for the selection
for redemption of portions (equal to $1,000 or any integral
multiple thereof) of the principal amount of Securities of a
denomination larger than $1,000.
If any Security selected for partial redemption is
converted in part before termination of the conversion right with
respect to the portion of the Security so selected, the converted
portion of such Security shall be deemed (so far as may be) to be
the portion selected for redemption. Securities which have been
converted during a selection of Securities to be redeemed shall
be treated by the Trustee as Outstanding for the purpose of such
selection. In any case where more than one Security is
registered in the same name, the Trustee in its discretion may
treat the aggregate principal amount so registered as if it were
represented by one Security.
The Trustee shall promptly notify the Company and each
Security Registrar in writing of the Securities selected for
redemption and, in the case of any Securities selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Securities redeemed
<PAGE>
or to be redeemed only in part, to the portion of the principal
amount of such Securities which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class
mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the Redemption Date, to the Trustee and to each
Holder of Securities to be redeemed, at his address appearing in
the Security Register.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all the Outstanding Securities
are to be redeemed, the identification (and, in the
case of partial redemption of any Securities, the
principal amounts) of the particular Securities to be
redeemed,
(d) that on the Redemption Date the Redemption
Price will become due and payable upon each such
Security to be redeemed and that (unless the Company
shall default in payment of the Redemption Price)
interest thereon will cease to accrue on and after said
date,
(e) the conversion price, the date on which the
right to convert the Securities to be redeemed will
terminate and the place or places where such Securities
may be surrendered for conversion, and
(f) the place or places where such Securities are
to be surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at
the election of the Company shall be given by the Company or, at
the Company's written request received by the Trustee at least 45
days prior to the Redemption Date, by the Trustee in the name and
at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
At or prior to 9:00 a.m. (New York City time) on any
Redemption Date, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section
1003) an amount of money in same day funds sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be
an Interest Payment Date) accrued interest on, all the Securities
or portions thereof which are to be redeemed on that date other
<PAGE>
than any Securities called for redemption on that date which have
been converted prior to the date of such deposit.
If any Security called for redemption is converted, any
money deposited with the Trustee or with any Paying Agent or so
segregated and held in trust for the redemption of such Security
shall (subject to any right of the Holder of such Security or any
Predecessor Security to receive interest as provided in the last
paragraph of Section 307) be paid to the Company upon Company
Request or, if then held by the Company, shall be discharged from
such trust.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid,
the Securities so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein specified,
and from and after such date (unless the Company shall default in
the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such
Security shall be paid by the Company at the Redemption Price,
together with accrued interest to the Redemption Date; provided,
however, that installments of interest whose Maturity is on or
prior to the Redemption Date shall be payable to the Holders of
such Securities, or one or more Predecessor Securities,
registered as such at the close of business on the relevant
Record Dates according to their terms and the provisions of
Section 307.
If any Security called for redemption shall not be so
paid upon surrender thereof for redemption, the principal and
premium, if any, shall, until paid, bear interest from the
Redemption Date at the rate borne by the Security.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall
be surrendered at an office or agency of the Company maintained
for that purpose pursuant to Section 1002 (with, if the Company
or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and
the Trustee shall, upon receipt of a Company Order as set forth
in Section 303, authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities, of
any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so
surrendered.
ARTICLE TWELVE
<PAGE>
SUBORDINATION OF SECURITIES
SECTION 1201. Securities Subordinated to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a
Security, by his acceptance thereof, likewise covenants and
agrees, that, at all times and in all respects, the indebtedness
represented by the Securities and the payment of the principal of
and premium, if any, interest and Liquidated Damages, if any, on
each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment
in full of all Senior Indebtedness. The Company and the Trustee
acknowledge and agree that the Securities will be senior
subordinated indebtedness of the Company ranking pari passu with
all future senior subordinated indebtedness of the Company and
senior to all existing and future Subordinated Indebtedness.
SECTION 1202. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case
or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or
to its creditors, as such, or to a substantial part of its
assets, or (b) any proceeding for the liquidation, dissolution or
other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any
general assignment for the benefits of creditors or any other
marshalling of assets and liabilities of the Company, then and in
any such event the holders of Senior Indebtedness shall be
entitled to receive payment in full of all amounts due or to
become due on or in respect of all Senior Indebtedness; or
provision shall be made for such payment in money or money's
worth, before the Holders of the Securities are entitled to
receive any payment or distribution of any kind or character,
whether in cash, property or securities, on account of principal
of or premium, if any, interest or Liquidated Damages, if any, on
the Securities, and to that end the holders of Senior
Indebtedness shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or
character, whether in cash, property or securities, including any
such payment or distribution which may be payable or deliverable
by reason of the payment of any other indebtedness of the Company
being subordinated to the payment of the Securities, which may be
payable or deliverable in respect of the Securities in any such
case, proceeding, dissolution, liquidation or other winding up or
event.
In the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the Holder of any
Security shall have received any payment or distribution of
assets of the Company of any kind or character, whether in cash,
property or securities, including any such payment or
distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of the Company being
<PAGE>
subordinated to the payment of the Securities, before all Senior
Indebtedness is paid in full or payment thereof provided for, and
if such fact shall, at or prior to the time of such payment or
distribution, have been made known to the Trustee or such Holder,
as the case may be, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian,
assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to
pay all Senior Indebtedness in full, after giving effect to any
concurrent payment or distribution to or for the holders of
Senior Indebtedness.
For purposes of this Article only, the words "cash,
property or securities" shall not be deemed to include securities
of the Company as reorganized or readjusted, or securities of the
Company or any other corporation provided for by a plan of
reorganization or readjustment, which are subordinated in right
of payment to all Senior Indebtedness which may at the time be
outstanding to substantially the same extent as, or to a greater
extent than, the Securities are so subordinated as provided in
this Article. The consolidation of the Company with, or the
merger of the Company into, another Person or the liquidation or
dissolution of the Company following the conveyance or transfer
of its properties and assets substantially as an entirety to
another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a dissolution, winding up, liquidation,
reorganization, general assignment for the benefit of creditors
or marshalling of assets and liabilities of the Company for the
purposes of this Section if the Person formed by such
consolidation or into which the Company is merged or which
acquires by conveyance or transfer such properties and assets
substantially as an entirety, as the case may be, shall, as a
part of such consolidation, merger, conveyance or transfer,
comply with the conditions set forth in Article Eight.
SECTION 1203. Prior Payment to Senior Indebtedness upon
Acceleration of Securities.
In the event that any Securities are declared due and
payable before their Stated Maturity, then and in such event the
holders of Senior Indebtedness outstanding at the time such
Securities so become due and payable shall be entitled to receive
payment in full of all amounts due on or in respect of such
Senior Indebtedness, or provision shall be made for such payment
in money or money's worth, before the Holders of the Securities
are entitled to receive any payment (including any payment which
may be payable by reason of the payment of any other indebtedness
of the Company being subordinated to the payment of the
Securities) by the Company on account of the principal of or
premium, if any, interest on Liquidated Damages, if any, on the
Securities or on account of the purchase or other acquisition of
Securities.
<PAGE>
In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the Holder of
any Security prohibited by the foregoing provisions of this
Section, and if such fact shall, at or prior to the time of such
payment, have been made known to the Trustee or such Holder, as
the case may be, then and in such event such payment shall be
paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any
payment with respect to which Section 1202 would be applicable.
SECTION 1204. No Payment When Senior Indebtedness in Default.
(a) In the event and during the continuation of any
default in the payment of principal of or premium, if any, or
interest on any Senior Indebtedness beyond any applicable grace
period with respect thereto, or in the event that any event of
default with respect to any Senior Indebtedness shall have
occurred and be continuing and shall have resulted in such Senior
Indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or
waived or shall have ceased to exist and such acceleration shall
have been rescinded or annulled, or (b) in the event any judicial
proceeding shall be pending with respect to any such default in
payment or event of default, then no payment (including any
payment which may be payable by reason of the payment of any
other indebtedness of the Company being subordinated to the
payment of the Securities) shall be made by the Company on
account of the principal of or premium, if any, interest or
Liquidated Damages, if any, on the Securities or on account of
the purchase or other acquisition of Securities.
In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the Holder of
any Security prohibited by the foregoing provisions of this
Section, and if such fact shall, at or prior to the time of such
payment, have been made known to the Trustee or such Holder, as
the case may be, then and in such event such payment shall be
paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any
payment with respect to which Section 1202 would be applicable.
SECTION 1205. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this
Indenture or in any of the Securities shall prevent (a) the
Company, at any time except during the pendency of any case,
proceeding, dissolution, liquidation or other winding up, general
assignment for the benefit of creditors or other marshalling of
assets and liabilities of the Company referred to in Section 1202
or under the conditions described in Section 1203 or 1204, from
making payments at any time of principal of and premium, if any,
<PAGE>
or interest on the Securities, or (b) the application by the
Trustee of any money deposited with it hereunder to the payment
of or on account of the principal of and premium, if any, or
interest on the Securities or the retention of such payment by
the Holders, if, at the time of such application by the Trustee,
it did not have knowledge that such payment would have been
prohibited by the provisions of this Article.
SECTION 1206. Subrogation to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full of all amounts due on or
in respect of Senior Indebtedness, the Holders of the Securities
shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably
with the holders of all indebtedness of the Company which by its
express terms is subordinated to other indebtedness of the
Company to substantially the same extent as the Securities are
subordinated and is entitled to like rights of subrogation) to
the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities
applicable to the Senior Indebtedness until the principal of and
premium, if any, and Interest on the Securities shall be paid in
full. For purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any
cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the
provisions of this Article to the holders of Senior Indebtedness
by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness
and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior
Indebtedness.
SECTION 1207. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended
solely for the purpose of defining the relative rights of the
Holders of the Securities on the one hand and the holders of
Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Securities is
intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the
Holders of the Securities, the obligation of the Company, which
is absolute and unconditional, to pay to the Holders of the
Securities the principal of and premium, if any, and interest on
the Securities as and when the same shall become due and payable
in accordance with their terms; or (b) affect the relative rights
against the Company or the Holders of the Securities and
creditors of the Company other than the holders of Senior
Indebtedness; or (c) prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by
<PAGE>
applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior
Indebtedness to receive cash, property and securities otherwise
payable or deliverable to the Trustee or such Holder.
SECTION 1208. Trustee to Effectuate Subordination.
Each holder of a Security by his acceptance thereof
authorizes and directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the
subordination provided in this Article and appoints the Trustee
his attorney-in-fact for any and all such purposes.
SECTION 1209. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at
any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company or by any act or
failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the
foregoing paragraph, the holders of Senior Indebtedness may, at
any time and from time to time, without the consent of or notice
to the Trustee or the Holders of the Securities, without
incurring responsibility to the Holders of the Securities and
without impairing or releasing the subordination provided in this
Article or the obligations hereunder of the Holders of the
Securities to the holders of Senior Indebtedness, do any one or
more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter,
Senior Indebtedness, or otherwise amend or supplement in any
manner Senior Indebtedness or any instrument evidencing the same
or any agreement under which Senior Indebtedness is outstanding;
(ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness;
(iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person.
SECTION 1210. Notice to Trustee.
The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the
making of any payment to or by the Trustee in respect of the
Securities. Notwithstanding the provisions of this Article or
any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in
respect of the Securities, unless and until a Responsible Officer
of the Trustee shall have received written notice thereof from
<PAGE>
the Company or a holder of Senior Indebtedness or from any
trustee therefor; and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of Section 601,
shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have
received the notice provided for in this Section at least four
Business Days prior to the date upon which by the terms hereof
any money may become payable for any purpose (including, without
limitation, the payment of the principal of and premium, if any,
or interest on any Security), then, anything herein contained to
the contrary notwithstanding, the Trustee shall have full power
and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be
affected by any notice to the contrary which may be received by
it within four Business Days prior to such date.
Subject to the provisions of Section 601, the Trustee
shall be entitled to rely on the delivery to it of a written
notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee therefor) to establish that such
notice has been given by a holder of Senior Indebtedness (or a
trustee therefor). In the event that the Trustee determines in
good faith that further evidence is required with respect to the
right of any Person as a holder of Senior Indebtedness to
participate in any payment or distribution pursuant to this
Article, the Trustee may request such Person to furnish evidence
to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution
and any other facts pertinent to the rights of such Person under
this Article, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such
payment.
SECTION 1211. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the
Company referred to in this Article, the Trustee, subject to the
provisions of Section 601, and the Holders of the Securities
shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending,
or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of
creditors, agent or other person making such payment or
distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of
the Senior Indebtedness and other indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or
<PAGE>
to this Article.
SECTION 1212. Trustee Not Fiduciary for Holders of Senior
Indebtedness.
The Trustee shall not be deemed to owe any fiduciary
duty to the holders of Senior Indebtedness and shall not be
liable to any such holders if it shall in good faith mistakenly
pay over or distribute to Holders of Securities or to the Company
or to any other Person cash, property or securities to which
holders of Senior Indebtedness shall be entitled by virtue of
this Article or otherwise. With respect to the holders of Senior
Indebtedness, the Trustee undertakes to perform or to observe
only such of its covenants and obligations as are specifically
set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness
shall be read into this Article against the Trustee.
SECTION 1213. Rights of Trustee as Holder of Senior
Indebtedness; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article with respect
to any Senior Indebtedness which may at any time be held by it,
to the same extent as any other holder of Senior Indebtedness,
and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder.
Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
SECTION 1214. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the
Trustee shall have been appointed by the Company and be then
acting hereunder, the term "Trustee" as used in this Article
shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in
place of the Trustee; provided, however, that Section 1213 shall
not apply to the Company or any Affiliate of the Company if it or
such Affiliate acts as Paying Agent.
SECTION 1215. Certain Conversions Deemed Payment.
For the purposes of this Article only, (1) the issuance
and delivery of junior securities upon conversion of Securities
in accordance with Article Thirteen shall not be deemed to
constitute a payment or distribution on account of the principal
of or premium or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the payment,
issuance or delivery of cash, property or securities (other than
junior securities) upon conversion of a Security shall be deemed
<PAGE>
to constitute payment on account of the principal of such
Security. For the purposes of this Section, the term "junior
securities" means (a) shares of any class of capital stock of the
Company and (b) securities of the Company which are subordinated
in right of payment to all Senior Indebtedness which may be
outstanding at the time of issuance or delivery of such
securities to substantially the same extent as, or to a greater
extent than, the Securities are so subordinated as provided in
this Article. Nothing contained in this Article or elsewhere in
this Indenture or in the Securities is intended to or shall
impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the right,
which is absolute and unconditional, of the Holder of any
Security to convert such Security in accordance with Article
Thirteen.
SECTION 1216. No Suspension of Remedies.
Nothing contained in this Article shall limit the right
of the Trustee or the Holders of the Securities to take any
action to accelerate the maturity of the Securities pursuant to
the provisions described under Article Five and as set forth in
this Indenture or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this
Article of the holders, from time to time, of Senior Indebtedness
to receive the cash, property or securities receivable upon the
exercise of such rights or remedies.
ARTICLE THIRTEEN
CONVERSION OF SECURITIES
SECTION 1301. Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of
this Article, at the option of the Holder thereof, any Security
or any portion of the principal amount thereof which equals
$1,000 or any integral multiple thereof may be converted at any
time after the 60th day following the date of original issuance
of Securities under this Indenture at the principal amount
thereof, or of such portion thereof, into fully paid and
nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock, at the conversion
price, determined as hereinafter provided, in effect at the time
of conversion. Such conversion right shall expire at the close
of business on August 26, 2004. In case a Security or portion
thereof is called for redemption, such conversion right in
respect of the Security or portion so called shall expire at the
close of business on the second business day preceding the
applicable Redemption Date, unless the Company defaults in making
the payment due upon redemption.
The price at which shares of Common Stock shall be
delivered upon conversion (herein called the "conversion price")
<PAGE>
shall be initially $8.90 per share of Common Stock. The
conversion price shall be adjusted in certain instances as
provided in paragraphs (a), (b), (c), (d), (e), (f) and (i) of
Section 1304.
SECTION 1302. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the
Holder of any Security shall surrender such Security, duly
endorsed or assigned to the Company or in blank, at any office or
agency of the Company maintained pursuant to Section 1002,
accompanied by written notice to the Company in the form provided
in the Security (or such other notice as is acceptable to the
Company) at such office or agency that the Holder elects to
convert such Security or, if less than the entire principal
amount thereof is to be converted, the portion thereof to be
converted. Securities surrendered for conversion during the
period from the opening of business on any Regular Record Date
next preceding any Interest Payment Date to the close of business
on such Interest Payment Date shall (except in the case of
Securities or portions thereof which have been called for
redemption) be accompanied by payment in New York Clearing House
funds or other funds acceptable to the Company of an amount equal
to the interest payable on such Interest Payment Date on the
principal amount being surrendered for conversion. Except as
provided in the immediately preceding sentence and subject to the
fourth paragraph of Section 307, no payment or adjustment shall
be made upon any conversion on account of any interest accrued on
the Securities surrendered for conversion or on account of any
dividends on the Common Stock issued upon conversion.
Securities shall be deemed to have been converted
immediately prior to the close of business on the day of
surrender of such Securities for conversion in accordance with
the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person
or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes of the record holder
or holders of such Common Stock as and after such time. As
promptly as practicable on or after the conversion date, the
Company shall issue and shall deliver at such office or agency a
certificate or certificates for the number of full shares of
Common Stock issuable upon conversion, together with payment in
lieu of any fraction of a share, as provided in Section 1303.
In the case of any Security which is converted in part
only, upon such conversion the Company shall execute and the
Trustee shall, upon receipt of a Company Order as set forth in
Section 303, authenticate and deliver to the Holder thereof, at
the expense of the Company, a new Security or Securities of
authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Security.
SECTION 1303. Fractions of Shares.
<PAGE>
No fractional share of Common Stock shall be issued
upon conversion of Securities. If more than one Security shall
be surrendered for conversion at one time by the same Holder, the
number of full shares which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock
which would otherwise be issuable upon conversion of any Security
or Securities (or specified portions thereof), the Company shall
pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction of the Closing Price (as hereinafter
defined) at the close of business on the day of conversion (or,
if such day is not a Trading Day (as hereafter defined), on the
Trading Day immediately preceding such day).
SECTION 1304. Adjustment of Conversion Price.
(a) In case the Company shall pay or make a dividend
or other distribution on the Common Stock exclusively in Common
Stock or shall pay or make a dividend or other distribution on
any other class of capital stock of the Company which dividend or
distribution includes Common Stock, the conversion price in
effect at the opening of business on the day following the date
fixed for the determination of shareholders entitled to receive
such dividend or other distribution shall be reduced by
multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number
of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day
following the date fixed for such determination. For the purpose
of this paragraph (a), the number of shares of Common Stock at
any time outstanding shall not include shares held in the
treasury of the Company. The Company shall not pay any dividend
or make any distribution on shares of Common Stock held in the
treasury of the Company.
(b) Subject to paragraph (g) of this Section, in case
the Company shall pay or make a dividend or other distribution on
the Common Stock consisting exclusively of, or shall otherwise
issue to all holders of the Common Stock, rights or warrants
entitling the holders thereof to subscribe for or purchase shares
of Common Stock at a price per share less than the Current Market
Price (determined as provided in paragraph (h) of this Section)
on the date fixed for the determination of shareholders entitled
to receive such rights or warrants, the conversion price in
effect at the opening of business on the day following the date
fixed for such determination shall be reduced by multiplying such
conversion price by a fraction of which the numerator shall be
the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number
of shares of Common Stock which the aggregate of the offering
<PAGE>
price of the total number of shares of Common Stock so offered
for subscription or purchase would purchase at such Current
Market Price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date
fixed for such determination plus the number of shares of Common
Stock so offered for subscription or purchase, such reduction to
become effective immediately after the opening of business on the
day following the date fixed for such determination. For the
purposes of this paragraph (b), the number of shares of Common
Stock at any time outstanding shall not include shares held in
the treasury of the Company. The Company shall not issue any
rights or warrants in respect of shares of Common Stock held in
the treasury of the Company.
(c) In case outstanding shares of Common Stock shall
be subdivided into a greater number of shares of Common Stock,
the conversion price in effect at the opening of business on the
day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, in
case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the conversion price in
effect at the opening of business on the day following the day
upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of
business on the day following the day upon which subdivision or
combination becomes effective.
(d) Subject to the last sentence of this paragraph (d)
and to paragraph (g) of this Section, in case the Company shall,
by dividend or otherwise, distribute to all holders of the Common
Stock evidences of its indebtedness, shares of any class of its
capital stock or other assets (including securities, but
excluding any rights or warrants referred to in paragraph (b) of
this Section, excluding any dividend or distribution paid
exclusively in cash and excluding any dividend or distribution
referred to in paragraph (a) of this Section), the conversion
price shall be reduced by multiplying the conversion price in
effect immediately prior to the close of business on the date
fixed for the determination of shareholders entitled to such
distribution by a fraction of which the numerator shall be the
Current Market Price (determined as provided in paragraph (h) of
this Section) on such date less the fair market value (as
determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution) on such date
of the portion of the evidences of indebtedness, shares of
capital stock and other assets to be distributed applicable to
one share of Common Stock and the denominator shall be such
Current Market Price, such reduction to become effective
immediately prior to the opening of business on the day following
such date. If the Board of Directors determines the fair market
value of any distribution for purposes of this paragraph (d) by
reference to the actual or when-issued trading market for any
securities comprising part or all of such distribution, it must
<PAGE>
in doing so consider the prices in such market over the same
period used in computing the Current Market Price pursuant to
paragraph (h) of this Section, to the extent possible. For
purposes of this paragraph (d), any dividend or distribution that
includes shares of Common Stock, rights or warrants to subscribe
for or purchase shares of Common Stock or securities convertible
into or exchangeable for shares of Common Stock shall be deemed
to be (x) a dividend or distribution of the evidences of
indebtedness, assets or shares of capital stock other than such
shares of Common Stock, such rights or warrants or such
convertible or exchangeable securities (making any conversion
price reduction required by this paragraph (d)) immediately
followed by (y) in the case of such shares of Common Stock or
such rights or warrants, a dividend or distribution thereof
(making any further conversion price reduction required by
paragraph (a) and (b) of this Section, except any shares of
Common Stock included in such dividend or distribution shall not
be deemed "outstanding at the close of business on the date fixed
for such determination" within the meaning of paragraph (a) of
this Section), or (z) in the case of such convertible or
exchangeable securities, a dividend or distribution of the number
of shares of Common Stock as would then be issuable upon the
conversion or exchange thereof, whether or not the conversion or
exchange of such securities is subject to any conditions (making
any further conversion price reduction required by paragraph (a)
of this Section, except the shares deemed to constitute such
dividend or distribution shall not be deemed "outstanding at the
close of business on the date fixed for such determination"
within the meaning of paragraph (a) of this Section).
(e) In case the Company shall, by dividend or
otherwise, at any time distribute to all holders of the Common
Stock cash (excluding any cash that is distributed as part of a
distribution resulting in an adjustment pursuant to paragraph (d)
of this Section or in connection with a transaction to which
Section 1311 applies) in an aggregate amount that, together with
(i) the aggregate amount of any other distributions to all
holders of the Common Stock of cash within the 12 months
preceding the date fixed for the determination of shareholders
entitled to such distribution and in respect of which no
conversion price adjustment pursuant to this paragraph (e) has
been made previously and (ii) the aggregate of any cash plus the
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board
Resolution) as of such date of determination of consideration
payable in respect of any tender offer by the Company or a
Subsidiary for all or any portion of the Common Stock consummated
within the 12 months preceding such date of determination and in
respect of which no conversion price adjustment pursuant to
paragraph (f) of this Section has been made previously, exceeds
12.5% of the product of the Current Market Price (determined as
provided in paragraph (h) of this Section) on such date of
determination times the number of shares of Common Stock
outstanding on such date, the conversion price shall be reduced
<PAGE>
by multiplying the conversion price in effect immediately prior
to the close of business on such date of determination by a
fraction of which the numerator shall be the Current Market Price
(determined as provided in paragraph (h) of this Section) on such
date less the amount of cash to be distributed at such time
applicable to one share of Common Stock and the denominator shall
be such Current Market Price, such reduction to become effective
immediately prior to the opening of business on the day after
such date.
(f) In case a tender offer made by the Company or any
Subsidiary for all or any portion of the Common Stock shall be
consummated and such tender offer shall involve an aggregate
consideration having a fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and
described in a Board Resolution) as of the last time (the
"Expiration Time") that tenders may be made pursuant to such
tender offer (as it shall have been amended) that, together with
(i) the aggregate of the cash plus the fair market value (as
determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution) as of the
Expiration Time of the other consideration paid in respect of any
other tender offer by the Company or a Subsidiary for all or any
portion of the Common Stock consummated within the 12 months
preceding the Expiration Time and in respect of which no
conversion price adjustment pursuant to this paragraph (f) has
been made previously and (ii) the aggregate amount of any
distributions to all holders of the Common Stock made exclusively
in cash within the 12 months preceding the Expiration Time and in
respect of which no conversion price adjustment pursuant to
paragraph (e) of this Section has been made previously, exceeds
12.5% of the product of the Current Market Price (determined as
provided in paragraph (h) of this Section) immediately prior to
the Expiration Time times the number of shares of Common Stock
outstanding (including any tendered shares) at the Expiration
Time, the conversion price shall be reduced by multiplying the
conversion price in effect immediately prior to the Expiration
Time by a fraction of which the numerator shall be (x) the
product of the Current Market Price (determined as provided in
paragraph (h) of this Section) immediately prior to the
Expiration Time times the number of shares of Common Stock
outstanding (including any tendered shares) at the Expiration
Time minus (y) the fair market value (determined as aforesaid) of
the aggregate consideration payable to shareholders upon
consummation of such tender offer and the denominator shall be
the product of (A) such Current Market Price times (B) such
number of outstanding shares at the Expiration Time minus the
number of shares accepted for payment in such tender offer (the
"Purchased Shares"), such reduction to become effective
immediately prior to the opening of business on the day following
the Expiration Time; provided, however, that if the number of
Purchased Shares or the aggregate consideration payable therefor
have not been finally determined by such opening of business, the
adjustment required by this paragraph (f) shall, pending such
<PAGE>
final determination, be made based upon the preliminarily
announced results of such tender offer, and, after such final
determination shall have been made, the adjustment required by
this paragraph (f) shall be made based upon the number of
Purchased Shares and the aggregate consideration payable therefor
as so finally determined.
(g) The reclassification of Common Stock into
securities which include securities other than Common Stock
(other than any reclassification upon a consolidation or merger
to which Section 1311 applies) shall be deemed to involve (i) a
distribution of such securities other than Common Stock to all
holders of Common Stock (and the effective date of such
reclassification shall be deemed to be "the date fixed for the
determination of shareholders entitled to such distribution"
within the meaning of paragraph (d) of this Section), and (ii) a
subdivision or combination, as the case may be, of the number of
shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock
outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which
such subdivision becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day
upon which such subdivision or combination becomes effective"
within the meaning of paragraph (c) of this Section).
Rights or warrants issued by the Company to all holders
of the Common Stock entitling the holders thereof to subscribe
for or purchase shares of Common Stock (either initially or under
certain circumstances), which rights or warrants (i) are deemed
to be transferred with such shares of Common Stock, (ii) are not
exercisable and (iii) are also issued in respect of future
issuances of Common Stock, in each case in clauses (i) through
(iii) until the occurrence of a specified event or events
("Trigger Event"), shall for purposes of this Section 1304 not be
deemed issued until the occurrence of the earliest Trigger Event.
If any such rights or warrants, including any such existing
rights or warrants distributed prior to the date of this
Indenture are subject to subsequent events, upon the occurrence
of each of which such rights or warrants shall become exercisable
to purchase different securities, evidences of indebtedness or
other assets, then the occurrence of each such event shall be
deemed to be such date of issuance and record date with respect
to new rights or warrants (and a termination or expiration of the
existing rights or warrants without exercise by the holder
thereof). In addition, in the event of any distribution (or
deemed distribution) of rights or warrants, or any Trigger Event
with respect thereto, that was counted for purposes of
calculating a distribution amount for which an adjustment to the
Conversion Price under this Section 1304 was made, (1) in the
case of any such rights or warrant which shall all have been
redeemed or repurchased without exercise by any holders thereof,
the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or
<PAGE>
Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase
price received by a holder or holders of Common Stock with
respect to such rights or warrants (assuming such holder had
retained such rights or warrants), made to all holders of Common
Stock as of the date of such redemption or repurchase, and (2) in
the case of such rights or warrants which shall have expired or
been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and
warrants had not been issued.
Notwithstanding any other provision of this Section
1304 to the contrary, rights, warrants, evidences of
indebtedness, other securities, cash or other assets (including,
without limitation, any rights distributed pursuant to any
stockholder rights plan) shall be deemed not to have been
distributed for purposes of this Section 1304 if the Company
makes proper provision so that each holder of Securities who
converts a Security (or any portion thereof) after the date fixed
for determination of stockholders entitled to receive such
distribution shall be entitled to receive upon such conversion,
in addition to the shares of Common Stock issuable upon such
conversions, the amount and kind of such distributions that such
holder would have been entitled to receive if such holder had,
immediately prior to such determination date, converted such
Security into Common Stock.
(h) For the purpose of any computation under this
paragraph and paragraphs (b), (d) and (e) of this Section, the
current market price per share of Common Stock (the "Current
Market Price") on any date shall be deemed to be the average of
the daily Closing Prices for the 5 consecutive Trading Days
selected by the Company commencing not more than 20 Trading Days
before, and ending not later than, the date in question;
provided, however, that (i) if the "ex" date for any event (other
than the issuance or distribution requiring such computation)
that requires an adjustment to the conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after
the 20th Trading Day prior to the date in question and prior to
the "ex" date for the issuance or distribution requiring such
computation, the Closing Price for each Trading Day prior to the
"ex" date for such other event shall be adjusted by multiplying
such Closing Price by the same fraction by which the conversion
price is so required to be adjusted as a result of such other
event, (ii) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that
requires an adjustment to the conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after
the "ex" date for the issuance or distribution requiring such
computation and on or prior to the date in question, the Closing
Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing Price
by the reciprocal of the fraction by which the conversion price
is so required to be adjusted as a result of such other event,
<PAGE>
and (iii) if the "ex" date for the issuance or distribution
requiring such computation is on or prior to the date in
question, after taking into account any adjustment required
pursuant to clause (ii) of this proviso, the Closing Price for
each Trading Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value
on the date in question (as determined by the Board of Directors
in a manner consistent with any determination of such value for
purposes of paragraph (d) or (e) of this Section, whose
determination shall be conclusive and described in a Board
Resolution) of the evidences of indebtedness, shares of capital
stock or assets being distributed applicable to one share of
Common Stock as of the close of business on the day before such
"ex" date. For the purpose of any computation under paragraph
(f) of this Section, the Current Market Price on any date shall
be deemed to be the average of the daily Closing Prices for the 5
consecutive Trading Days selected by the Company commencing on or
after the latest (the "Commencement Date") of (i) the date 20
Trading Days before the date in question, (ii) the date of
commencement of the tender offer requiring such computation and
(iii) the date of the last amendment, if any, of such tender
offer involving a change in the maximum number of shares for
which tenders are sought or a change in the consideration
offered, and ending not later than the Expiration Time of such
tender offer; provided, however, that if the "ex" date for any
event (other than the tender offer requiring such computation)
that requires an adjustment to the conversion price pursuant to
paragraph (a), (b), (c), (d), (e) or (f) above occurs on or after
the Commencement Date and prior to the Expiration Time for the
tender offer requiring such computation, the Closing Price for
each Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the same
fraction by which the conversion price is so required to be
adjusted as a result of such other event. The closing price for
any Trading Day (the "Closing Price") shall be the last reported
sales price regular way or, in case no such reported sale takes
place on such day, the average of the reported closing bid and
asked prices regular way, in either case on the New York Stock
Exchange or, if the Common Stock is not listed or admitted to
trading on such exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national
securities exchange, on the Nasdaq Stock Market's National Market
or, if the Common Stock is not listed or admitted to trading on
any national securities exchange or quoted on such National
Market, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock
Exchange member firm selected from time to time by the Company
for that purpose. For purposes of this paragraph, the term
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday, other than any day on which securities are generally not
traded on the applicable securities exchange or in the applicable
securities market and the term "'ex' date," (i) when used with
respect to any issuance or distribution, means the first date on
<PAGE>
which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the Closing Prices
were obtained without the right to receive such issuance or
distribution, (ii) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on
which the Common Stock trades regular way on such exchange or in
such market after the time at which such subdivision or
combination becomes effective, and (iii) when used with respect
to any tender offer means the first date on which the Common
Stock trades regular way on such exchange or in such market after
the last time that tenders may be made pursuant to such tender
offer (as it shall have been amended).
(i) The Company may make such reductions in the
conversion price, in addition to those required by paragraphs
(a), (b), (c), (d), (e) and (f) of this Section, as it considers
to be advisable (as evidenced by a Board Resolution) in order
that any event treated for federal income tax purposes as a
dividend of stock or stock rights shall not be taxable to the
recipients or, if that is not possible, to diminish any income
taxes that are otherwise payable because of such event.
(j) No adjustment in the conversion price shall be
required unless such adjustment (plus any other adjustments not
previously made by reason of this paragraph (j) would require an
increase or decrease of at least 1% in the conversion price;
provided, however, that any adjustments which by reason of this
paragraph (j) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(k) Notwithstanding any other provision of this
Section 1304, no adjustment to the conversion price shall reduce
the conversion price below the then par value per share of the
Common Stock, and any such purported adjustment shall instead
reduce the conversion price to such par value. The Company
hereby covenants not to take any action to increase the par value
per share of the Common Stock.
SECTION 1305. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein
provided:
(a) the Company shall compute the adjusted
conversion price in accordance with Section 1304 and
shall prepare an Officers' Certificate signed by the
Treasurer of the Company setting forth the adjusted
conversion price and showing in reasonable detail the
facts upon which such adjustment is based, and such
certificate shall forthwith be filed (with a copy to
the Trustee) at each office or agency maintained for
the purpose of conversion of Securities pursuant to
Section 1002; and
<PAGE>
(b) a notice stating that the conversion price
has been adjusted and setting forth the adjusted
conversion price shall forthwith be prepared, and as
soon as practicable after it is prepared, such notice
shall be mailed by the Company to all Holders at their
last addresses as they shall appear in the Security
Register.
SECTION 1306. Notice of Certain Corporate Action.
In case:
(a) the Company shall declare a dividend (or any
other distribution) on its Common Stock payable (i)
otherwise than exclusively in cash or (ii) exclusively
in cash in an amount that would require a conversion
price adjustment pursuant to paragraph (e) of Section
1304; or
(b) the Company shall authorize the granting to
the holders of its Common Stock of rights or warrants
to subscribe for or purchase any shares of capital
stock of any class or of any other rights (excluding
shares of capital stock or option for capital stock
issued pursuant to a benefit plan for employees,
officers or directors of the Company); or
(c) of any reclassification of the Common Stock
(other than a subdivision or combination of the
outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which the
Company is a party and for which approval of any
shareholders of the Company is required, or of the sale
or transfer of all or substantially all of the assets
of the Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(e) the Company or any Subsidiary shall commence
a tender offer for all or a portion of the outstanding
shares of Common Stock (or shall amend any such tender
offer to change the maximum number of shares being
sought or the amount or type of consideration being
offered therefor);
then the Company shall cause to be filed (with a copy to the
Trustee) at each office or agency maintained pursuant to Section
1002, and shall cause to be mailed to all Holders at their last
addresses as they shall appear in the Security Register, at least
21 days (or 11 days in any case specified in clause (a), (b) or
(e) above) prior to the applicable record, effective or
expiration date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such
<PAGE>
dividend, distribution or granting of rights or warrants, or, if
a record is not to be taken, the date as of which the holders of
Common Stock of record who will be entitled to such dividend,
distribution, rights or warrants are to be determined, (y) the
date on which such reclassification, consolidation, merger, share
exchange, sale, transfer, dissolution, liquidation or winding up
is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities, cash or
other property deliverable upon such reclassification,
consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding up, or (z) the date on which
such tender offer commenced, the date on which such tender offer
is scheduled to expire unless extended, the consideration offered
and the other material terms thereof (or the material terms of
any amendment thereto). Neither the failure to give any such
notice nor any defect therein shall affect the legality or
validity of any action described in clauses (a) through (e) of
this Section 1306.
SECTION 1307. Company to Reserve Common Stock.
The Company shall at all times reserve and keep
available, free from preemptive rights, out of the authorized but
unissued Common Stock or out of the Common Stock held in
treasury, for the purpose of effecting the conversion of
Securities, the full number of shares of Common Stock then
issuable upon the conversion of all outstanding Securities.
Shares of Common Stock issuable upon conversion of outstanding
Securities shall be issued out of the Common Stock held in
Treasury to the extent available.
SECTION 1308. Taxes on Conversions.
The Company will pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect of
the issue or delivery of shares of Common Stock on conversion of
Securities pursuant hereto. The Company shall not, however, be
required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common
Stock in a name other than that of the Holder of the Security or
Securities to be converted, and no such issue or delivery shall
be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has
been paid.
SECTION 1309. Covenant as to Common Stock.
The Company covenants that all shares of Common Stock
which may be issued upon conversion of Securities will upon issue
be fully paid and nonassessable and, except as provided in
Section 1308, the Company will pay all taxes, liens and charges
with respect to the issue thereof.
<PAGE>
SECTION 1310. Cancellation of Converted Securities.
All Securities delivered for conversion shall be
delivered to the Trustee to be canceled by or at the direction of
the Trustee, which shall dispose of the same as provided in
Section 309.
SECTION 1311. Effect of Consolidation, Merger or Sale of Assets.
In case of any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of
another Person into the Company (other than a merger which does
not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock) or any sale
or transfer of all or substantially all of the assets of the
Company, the Person formed by such consolidation or resulting
from such merger or which acquires such assets, as the case may
be, shall execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Security then
Outstanding shall have the right thereafter, during the period
such Security shall be convertible as specified in Section 1301,
to convert such Security only into the kind and amount of
securities, cash and other property, if any, receivable upon such
consolidation, merger, sale or transfer by a holder of the number
of shares of Common Stock into which such Security might have
been converted immediately prior to such consolidation, merger,
sale or transfer, assuming such holder of Common Stock (i) is not
a Person with which the Company consolidated or into which the
Company merged or which merged into the Company or to which such
sale or transfer was made, as the case may be (a "Constituent
Person"), or an Affiliate of a Constituent Person and (ii) failed
to exercise his rights of election, if any, as to the kind or
amount of securities, cash and other property receivable upon
such consolidation, merger, sale or transfer (provided that if
the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer is
not the same for each share of Common Stock held immediately
prior to such consolidation, merger, sale or transfer by other
than a Constituent Person or an Affiliate thereof and in respect
of which such rights of election shall not have been exercised
("nonelecting share"), then for the purpose of this Section the
kind and amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer by each
nonelecting share shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting shares).
Such supplemental indenture shall provide for adjustments which,
for events subsequent to the effective date of such supplemental
indenture, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Article. The above
provisions of this Section shall similarly apply to successive
consolidations, mergers, sales or transfers.
SECTION 1312. Trustee's Disclaimer.
<PAGE>
The Trustee has no duty to determine when an adjustment
under this Article 13 should be made, how it should be made or
what such adjustment should be, but may accept as conclusive
evidence of the correctness of any such adjustment, and shall be
protected in relying upon, the Officers' Certificate with respect
thereto which the Company is obligated to file with the Trustee
pursuant to Section 1305. The Trustee makes no representation as
to the validity or value of any securities or assets issued upon
conversion of Securities, and the Trustee shall not be
responsible for the Company's failure to comply with any
provisions of this Article 13.
The Trustee shall not be under any responsibility to
determine the correctness of any provisions contained in any
supplemental indenture executed pursuant to Section 1311, but
shall be entitled to receive and may accept as conclusive
evidence of the correctness thereof, and shall be protected in
relying upon, an Officers' Certificate with respect thereto.
ARTICLE FOURTEEN
RIGHT TO REQUIRE REPURCHASE
SECTION 1401. Right to Require Repurchase.
In the event that there shall occur a Repurchase Event
(as defined in Section 1406), then each Holder shall have the
right, at such Holder's option, to require the Company to
purchase, and upon the exercise of such right, the Company shall,
subject to the provisions of Section 1203, purchase, all or any
part of such Holder's Securities on the date (the "Repurchase
Date") that is 60 days after the date the Company gives notice of
the Repurchase Event as contemplated in Section 1402(a) at a
price (the "Repurchase Price") equal to 100% of the principal
amount thereof, together with accrued and unpaid interest to the
Repurchase Date.
SECTION 1402. Notice; Method of Exercising Repurchase Right.
(a) On or before the 60th day after the occurrence of
a Repurchase Event, the Company, or upon Company request received
by the Trustee at least 45 days prior to the Repurchase Date, the
Trustee (in the name and at the expense of the Company), shall
give notice of the occurrence of the Repurchase Event and of the
repurchase right set forth herein arising as a result thereof by
first-class mail, postage prepaid, to the Trustee and to each
Holder of the Securities at such Holder's address appearing in
the Security Register. The Company shall also deliver a copy of
such notice of a repurchase right to the Trustee.
Each notice of a repurchase right shall state:
(1) the event constituting the Repurchase Event
and the date thereof,
<PAGE>
(2) the Repurchase Date,
(3) the date by which the repurchase right must
be exercised,
(4) the Repurchase Price, and
(5) the instructions a Holder must follow to
exercise a repurchase right.
No failure of the Company to give the foregoing notice
shall limit any Holder's right to exercise a repurchase right.
The Trustee shall have no obligation to determine if there shall
have occurred a Repurchase Event.
(b) To exercise a repurchase right, a Holder shall
deliver to the Company (or an agent designated by the Company for
such purpose in the notice referred to in (a) above) and to the
Trustee on or before the close of business on the Repurchase Date
(i) written notice of the Holder's exercise of such right, which
notice shall set forth the name of the Holder, the principal
amount of the Security or Securities (or portion of a Security)
to be repurchased, and a statement that an election to exercise
the repurchased right is being made thereby, and (ii) the
Security or Securities with respect to which the repurchase right
is being exercised, duly endorsed for transfer to the Company.
Such written notice shall be irrevocable. If the Repurchase Date
falls between any Regular Record Date and the next succeeding
Interest Payment Date, Securities to be repurchased must be
accompanied by payment from the Holder of an amount equal to the
interest thereon which the registered Holder thereof is to
receive on such Interest Payment Date.
(c) In the event a repurchase right shall be exercised
in accordance with the terms hereof, the Company shall on the
Repurchase Date pay or cause to be paid in cash to the Holder
thereof the Repurchase Price of the Security or Securities as to
which the repurchase right had been exercised. In the event that
a repurchase right is exercised with respect to less than the
entire principal amount of a surrendered Security, the Company
shall execute and deliver to the Trustee and the Trustee shall,
upon receipt of a Company Order as set forth in Section 303,
authenticate for issuance in the name of the Holder a new
Security or Securities in the aggregate principal amount of the
unrepurchased portion of such surrendered security.
SECTION 1403. Deposit of Repurchase Price.
On or prior to the Repurchase Date, the Company shall
deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in
trust as provided in Section 1003) an amount of money in same day
funds sufficient to pay the Repurchase Price of the Securities
which are to be repaid on the Repurchase Date.
<PAGE>
SECTION 1404. Securities Not Repurchased on Repurchase Date.
If any Security surrendered for repurchase shall not be
so paid on the Repurchase Date, the principal shall, until paid,
bear interest to the extent permitted by applicable law from the
Repurchase Date at the rate per annum borne by such Security.
SECTION 1405. Securities Repurchased in Part.
Any Security which is to be repurchased only in part
shall be surrendered at any office or agency of the Company
designated for that purpose pursuant to Section 1002 (with, if
the Company or the Trustee so requires, due endorsement by, or
written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or
his attorney duly authorized in writing), and the Company shall
execute, and the Trustee shall, upon receipt of a Company Order
as set forth in Section 303, authenticate and deliver to the
Holder of such Security without service charge, a new Security or
Securities of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange
for the unrepurchased portion of the principal of the Security so
surrendered.
SECTION 1406. Certain Definitions.
For purposes of this Article:
(a) A "Repurchase Event" shall have occurred upon (i)
the occurrence of a Change in Control or Termination of Trading
after the date of this Indenture and on or prior to the earlier
of final Maturity or the redemption of all Outstanding
Securities, or (ii) the failure by the Company to repurchase at
least 4,000,000 shares of Common Stock prior to the expiration of
150 days from the date on which the Debentures are originally
issued.
(b) A "Change in Control" shall occur when:
(i) all or substantially all of the Company's assets
are sold as an entirety to any person or related group of
persons;
(ii) there shall be consummated any consolidation or
merger of the Company (A) in which the Company is not the
continuing or surviving corporation (other than a
consolidation or merger with a wholly owned subsidiary of
the Company in which all shares of Common Stock outstanding
immediately prior to the effectiveness thereof are changed
into or exchanged for the same consideration) or (B)
pursuant to which the Common Stock would be converted into
cash, securities or other property, except in the case of
(A) and (B), a consolidation or merger of the Company in
which the holders of the Common Stock immediately prior to
<PAGE>
the consolidation or merger have, directly or indirectly, at
least a majority of the total voting power of all classes of
capital stock entitled to vote generally in the election of
directors of the continuing or surviving corporation
immediately after such consolidation or merger in
substantially the same proportion as their ownership of
Common Stock immediately before such transaction;
(iii) any person, or any persons acting together which
would constitute a "group" for purposes of Section 13(d) of
the Exchange Act (a "Group"), together with any Affiliates
thereof, excluding for purposes of this clause, WorldCorp,
Inc., shall beneficially own (as defined in Rule 13d-3 under
the Exchange Act) at least 50% of the total voting power of
all classes of capital stock of the Company entitled to vote
generally in the election of directors of the Company;
(iv) at any time during any consecutive two-year
period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together
with any new directors whose election by such Board of
Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66-
2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of
Directors of the Company then in office; or
(v) the Company is liquidated or dissolved or adopts
a plan of liquidation or dissolution;
provided, however, that a Change in Control shall not be deemed
to have occurred if either (a) the closing price per share of the
Common Stock for any 10 Trading Days within the period of 20
consecutive Trading Days ending immediately before the Change in
Control shall equal or exceed 105% of the conversion price in
effect on each such Trading Day, or (b) (i) at least 90% of the
consideration (excluding cash payments for fractional shares) in
the transaction or transactions constituting the Change in
Control consists of shares of common stock with full voting
rights traded on a national securities exchange or quoted on the
Nasdaq National Market (or which will be so traded or quoted when
issued or exchanged in connection with such Change in Control)
(such securities being referred to as "Publicly Traded
Securities") and as a result of such transaction or transactions
such Debentures become convertible solely into such Publicly
Traded Securities and (ii) the consideration in the transaction
or transactions constituting the Change in Control consists of
cash, Publicly Traded Securities or a combination of cash and
Publicly Traded Securities with an aggregate fair market value
(which, in the case of Publicly Traded Securities, shall be equal
to the average closing price of such Publicly Traded Securities
during the ten consecutive Trading Days commencing with the sixth
<PAGE>
Trading Day following consummation of the transaction or
transactions constituting the Change in Control) of at least 105%
of the conversion price in effect on the date immediately
preceding the date of consummation of such Change in Control.
(c) A "Termination of Trading" shall occur if the Common
Stock (or other common stock into which the Securities are then
convertible) is neither listed for trading on a U.S. national
securities exchange nor approved for trading on an established
automated over-the-counter trading market in the United States.
--------------------------
This instrument may be executed in any number of
counterparts, each of which when so executed, shall be deemed to
be an original, but all such counterparts shall together
constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and
year first above written.
WORLD AIRWAYS, INC.
By
-------------------------------
Name:
Title:
Attest:
- ----------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
as Trustee
By
-------------------------------
Name:
Title:
Attest:
- ----------------------------
- ----------------------------
Assistant Secretary
<PAGE>
Commonwealth of Virginia )
) ss.
County of ____________ )
On the _______ day of August, 1997, before me personally
came __________, to me known, who, being by me duly sworn, did
depose and say that he is __________ of World Airways, Inc., a
Delaware corporation, one of the corporations described in and
which extended the foregoing instrument; that he knows the seal
of the corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority by the
Board of Directors of said corporation; and that he signed his
name thereto by like authority.
-------------------------
Commonwealth of Virginia )
) ss.
County of _____________)
On the _____ day of August, 1997, before me personally came
___________________, to me known, who, being by me duly sworn,
did depose and say that he is __________ of First Union National
Bank, a duly organized national association existing under the
laws of the United States described in and which executed the
foregoing instrument; that he knows the seal of the corporation;
that the seal affixed to said instrument is such seal; that it
was so affixed by authority of the Board of Directors of said
corporation; and that he signed his name thereto by like
authority.
-------------------------
<PAGE>
EXHIBIT A
FORM OF TRANSFER CERTIFICATE
FOR TRANSFER FROM
RULE 144A GLOBAL SECURITY
TO REGULATIONS S TEMPORARY GLOBAL SECURITY
(Transfers pursuant to U 304(a)(ii)
of the Indenture)
First Union National Bank
901 East Cary Street
Second Floor
Richmond, VA 23219
Attention: Corporate Trust Administration
Re: World Airways, Inc.
8.0% Convertible Senior Subordinated Securities
due 2004 (the "Securities")
Reference is hereby made to the Indenture dated as of August 1, 1997 (the
"Indenture") between World Airways, Inc., as Issuer, and First Union National
Bank, as Trustee. Capitalized terms used but not defined herein shall have the
meanings given them in the Indenture.
This letter relates to U.S. $____________________ aggregate principal
amount of Securities which are held in the form of the Rule 144A Global Security
(CUSIP No. 98142HAA3) with the Depositary in the name of _____________________
[name of transferor] (the "Transferor") to effect the transfer of the Securities
in exchange for an equivalent beneficial interest in the Regulation S Temporary
Global Security.
In connection with such request, the Transferor does hereby certify that
such transfer has been effected in accordance with the transfer restrictions set
forth in the Securities and (i) with respect to transfers made in reliance on
Regulation S, does certify that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither the Transferor nor any
person acting on its behalf knows that the transaction was pre-arranged
with a buyer in the United States;
(3) no directed selling efforts have been made in contravention of the
requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and
<PAGE>
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the United States Securities Act of 1933 (the
"Securities Act");
(ii) with respect to transfers made in reliance on Rule 144 certify that the
Securities are being transferred in a transaction permitted by Rule 144 under
the Securities Act; and (iii) with respect to transfers made in reliance on Rule
144A, that such Securities are being transferred in accordance with Rule 144A
under the Securities Act to a transferee that the Transferor reasonably believes
is purchasing the Securities for its own account or an account with respect to
which the transferee exercises sole investment discretion and the transferee and
any such account is a "qualified institutional buyer" within the meaning of Rule
144A, in a transaction meeting the requirements of Rule 144A and in accordance
with applicable securities laws of any state of the United States or any other
jurisdiction.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1) of Regulation S are
applicable thereto, we confirm that such sale has been made in accordance with
the applicable provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1), as the
case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
[Name of Transferor]
By:
------------------------------------
Name:
Title:
Date:
<PAGE>
EXHIBIT B
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM REGULATION S TEMPORARY GLOBAL SECURITY
TO RULE 144A GLOBAL SECURITY
(Transfers pursuant to U 304(a)(iii)
of the Indenture)
First Union National Bank
901 East Cary Street
Second Floor
Richmond, VA 23219
Attention: Corporate Trust Administration
Re: World Airways, Inc.
8.0% Convertible Senior Subordinated Debentures due
2004 (the "Securities")
Reference is hereby made to the Indenture dated as of August 1, 1997 (the
"Indenture") between World Airways, Inc., as Issuer, and First Union National
Bank, as Trustee. Capitalized terms used but not defined herein shall have the
meanings given them in the Indenture.
This letter relates to U.S. $_________________ aggregate principal amount
of Securities which are held in the form of the Regulation S Temporary Global
Security with the Depositary (ISIN No. USU9871WAA19) in the name of
______________________ [name or transferor] (the "Transferor") to effect the
transfer of the Securities in exchange for an equivalent beneficial interest in
the Rule 144A Global Security.
In connection with such request, and in respect of such Securities, the
Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities and
(ii) Rule 144A under the United States Securities Act of 1933 to a transferee
that the Transferor reasonably believes is purchasing the Securities for its own
account or an account with respect to which the transferee exercises sole
investment discretion and the transferee and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in a transaction meeting
the requirements of Rule 144A and in accordance with applicable securities laws
of any state of the United States or any other jurisdiction. You and the Company
are entitled to rely upon this letter and are irrevocably authorized to produce
this letter or a copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters covered
hereby.
<PAGE>
[Name of Transferor]
By:
------------------------------
Name:
Title:
Date:
<PAGE>
EXHIBIT C
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
FROM GLOBAL SECURITY OR CERTIFICATED
SECURITY TO CERTIFICATED SECURITY
(Transfers pursuant to U 304(a)(iv)
or U 304(a)(v) of the Indenture)
First Union National Bank
901 East Cary Street
Second Floor
Richmond, VA 23219
Attention: Corporate Trust Administration
Re: World Airways, Inc.
8.0% Convertible Senior Subordinated Debentures due
2004 (the "Securities")
Reference is hereby made to the Indenture dated as of August 1, 1997 (the
"Indenture") between World Airways, Inc., as Issuer, and First Union National
Bank, as Trustee. Capitalized terms used but not defined herein shall have the
meanings given them in the Indenture.
This letter relates to U.S. $_________________ aggregate principal amount
of Securities which are held [in the form of the [Rule 144A Global] [Regulation
S Global] [Certificated] Security (CUSIP No. 98142HAA3/ISIN No.
USU9871WAA19/CUSIP No. 98142HAB1) with the Depositary] in the name of
___________________ [name of transferor] (the "Transferor") to effect the
transfer of the Securities.
In connection with such request, and in respect of such Securities, the
Transferor does hereby certify that such Securities are being transferred in
accordance with (i) the transfer restrictions set forth in the Securities and
(ii) to a transferee that the Transferor reasonably believes is an "accredited
investor" (as defined in Rule 501(a)(1), (2), (3), (5), (6) or (7) of Regulation
D under the Securities Act of 1933) and is acquiring Securities for its own
account or for one or more accounts as to which the transferee exercises sole
investment discretion and (iii) in accordance with applicable securities laws of
any state of the United States or any other jurisdiction. You and the Company
are entitled to rely upon this letter and are irrevocably authorized to produce
this letter or a copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters covered
hereby.
[Name of Transferor]
By:
-----------------------------------
Name:
Title:
Date:
<PAGE>
EXHIBIT D
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers pursuant to U304(a)(iv) and U304(a)(v))
First Union National Bank
901 East Cary Street
Second Floor
Richmond, VA 23219
Attention: Corporate Trust Administration
Re: World Airways, Inc.
8.0% Convertible Senior Subordinated Debentures due
2004 (the "Securities")
Reference is hereby made to the Indenture dated as of August 1, 1997 (the
"Indenture") between World Airways, Inc., as Issuer, and First Union National
Bank, as Trustee. Capitalized terms used but not defined herein shall have the
meanings given them in the Indenture.
This letter relates to U.S. $_________________ aggregate principal amount
of Securities which are held [in the form of the [Rule 144A Global] [Regulation
S Global] [Certificated] Security (CUSIP No. 98142HAA3/ISIN No.
USU9871WAA19/CUSIP No. 98142HAB1) with the Depositary] in the name of
______________________ [name of transferor] (the "Transferor") to effect the
transfer of the Securities to the undersigned.
In connection with such request, and in respect of such Securities we
confirm that:
1. We understand that the Securities were originally offered in a
transaction not involving any public offering in the United States within
the meaning of the United States Securities Act of 1933, as amended (the
"Securities Act"), that the Securities have not been registered under the
Securities Act and that (A) the Securities may be offered, resold, pledged
or otherwise transferred only (i) to a person who the seller reasonably
believes is a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in a transaction meeting the requirements of Rule
144A under the Securities Act, outside the United States to a foreign
person in a transaction meeting the requirements of Rule 904 under the
Securities Act or in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion
of counsel if the Company so requests), (ii) to the Company or (iii)
pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any State of the United
States or any other applicable jurisdiction and (B) the purchaser
<PAGE>
will, and each subsequent holder is required to, notify any subsequent
purchaser from it of the resale restrictions set forth in (A) above.
2. We are a corporation, partnership or other entity having such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of an investment in the Securities, and
we are (or any account for which we are purchasing under paragraph 4 below
is) an accredited investor as defined in Rule 501(a)(1), (2), (3), (5), (6)
or (7) under the Securities Act, able to bear the economic risk of our
proposed investment in the Securities.
3. We are acquiring the Securities for our own account (or for
accounts as to which we exercise sole investment discretion and have
authority to make, and do make, the statements contained in this letter)
and not with a view to any distribution of the Securities, subject,
nevertheless, to the understanding that the disposition of our property
shall at all times be and remain within our control.
4. We understand that (a) the Securities will be delivered to us in
registered form only and that the certificate delivered to us in respect of
the Securities will bear a legend substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES NOT TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY
AFFILIATED PERSON OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF SUCH SECURITY) UNLESS SUCH OFFER, SALE OR OTHER TRANSFER IS (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON THE HOLDER REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S.
PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S
UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
<PAGE>
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER
PURSUANT TO CLAUSES (C), (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM,
AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE THEN HOLDER OF THIS
SECURITY AFTER THE RESALE RESTRICTION TERMINATION DATE.
and (b) such certificates will be reissued without the foregoing legend
only in accordance with the terms of the Indenture.
5. We agree that in the event that at some future time we wish to dispose
of any of the Securities, we will not do so unless:
(a) the Securities are sold to the Company or any Subsidiary thereof;
(b) the Securities are sold to a qualified institutional buyer in
compliance with Rule 144A under the Securities Act;
(c) the Securities are sold to an accredited investor, as defined in
Rule 501(a)(1), (2), (3), (5), (6) or (7) under the Securities Act, that,
prior to such transfer, furnishes to the Trustee a signed letter containing
certain representations and agreements relating to the restrictions on
transfer of the Securities (the form of which letter can be obtained from
such Trustee);
(d) the Securities are sold to non-U.S. persons outside the United
States in compliance with Rule 903 or Rule 904 under the Securities Act;
(e) the Securities are sold by us pursuant to Rule 144 under the
Securities Act; or
(f) the Securities are sold pursuant to an effective registration
statement under the Securities Act.
Very truly yours,
[PURCHASER]
By:
------------------------------
Name:
Title:
Date:
<PAGE>
EXHIBIT E
FORM OF CERTIFICATE FOR TRANSFERS OF
REGULATION S TEMPORARY GLOBAL SECURITY
FOR REGULATION S PERMANENT GLOBAL SECURITY
(Transfers pursuant to U304(a)(viii))
(Transferor)
[MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, BRUSSELS OFFICE AS
OPERATOR OF THE EUROCLEAR SYSTEM]
[CEDEL BANK, SOCIETE ANONYME]
Re: World Airways, Inc.
8.0% Convertible Senior Subordinated Debentures due
2004 (the "Securities")
Reference is hereby made to the Indenture dated as of August 1, 1997 (the
"Indenture") between World Airways, Inc., as Issuer, and First Union National
Bank, as Trustee. Capitalized terms used but not defined herein shall have the
meanings given them in the Indenture.
This certificate relates to U.S. $_____________________ aggregate principal
amount of Securities which are held in the form of the Regulation S Temporary
Global Security (ISIN No. USU9871WAA19) with the Depositary in the name of
___________________ [name of transferor] (the "Transferor") to effect the
transfer of the beneficial interest in such Regulation S Temporary Global
Security for a beneficial interest in an equivalent aggregate principal amount
of the Regulation S Permanent Global Security.
In connection with such request, and in respect of such Securities we
confirm that:
1. We are either not a U.S. person (as defined below) or we have
purchased our beneficial interest in the above referenced Regulation S
Temporary Global Security in a transaction that is exempt from the
registration requirements under the Securities Act.
2. We are delivering this certificate in connection with obtaining a
beneficial interest in the Regulation S Permanent Global Security in
exchange for our beneficial interest in the Regulation S Temporary Global
Security.
For purposes of this certificate, "U.S. person" means (i) any individual
resident in the United States, (ii) any partnership or corporation organized or
incorporated under the laws of the United States, (iii) any estate of which an
executor or administrator is a U.S. person (other than an estate governed
<PAGE>
by foreign law and of which at least one executor or administrator is a non-U.S.
person who has sole or shared investment discretion with respect to it assets),
(iv) any trust of which any trustee is a U.S. person (other than a trust of
which at least one trustee is a non-U.S. person who has sole or shared
investment discretion with respect to its assets and no beneficiary of the trust
(and no settlor if the trust is revocable) is a U.S. person), (v) any agency or
branch of a foreign entity located in the United States, (vi) any non-
discretionary or similar account (other than an estate or trust) held by a
dealer or other fiduciary for the benefit or account of a U.S. person, (vii) any
discretionary or similar account (other than an estate or trust) held by a
dealer or other fiduciary organized, incorporated or (if an individual) resident
in the United States (other than such an account held for the benefit or account
of a non-U.S. person), (viii) any partnership or corporation organized or
incorporated under the laws of a foreign jurisdiction and formed by a U.S.
person principally for the purpose of investing in securities not registered
under the Securities Act (unless it is organized or incorporated, and owned, by
accredited investors within the meaning of Rule 501(a) under the Securities Act
who are not natural persons, estates or trusts); provided, however, that the
term "U.S. person" shall not include (A) a branch or agency of a U.S. person
that is located and operating outside the United States for valid business
purposes as a locally regulated branch or agency engaged in the banking or
insurance business, (B) any employee benefit plan established and administered
in accordance with the law, customary practices and documentation of a foreign
country and (C) the international organizations set forth in Section 902(o)(7)
of Regulation S under the Securities Act and any other similar international
organizations, and their agencies, affiliates and pension plans.
We irrevocably authorize you to produce this certificate or a copy hereof
to any interested party in any administrative or other proceedings with respect
to the matters covered by this certificate.
Very truly yours,
[TRANSFEROR]
By:
------------------------------
Name:
Title:
To be completed by the account
holder as, or as agent for,
the beneficial owner(s) of the
Securities to which this
certificate relates.
Dated:
<PAGE>
EXHIBIT F
FORM OF CERTIFICATE FOR TRANSFERS OF
REGULATION S TEMPORARY GLOBAL SECURITY
FOR REGULATION S PERMANENT GLOBAL SECURITY
(Transfers pursuant to U304(a)(viii))
(Euroclear or Cedel)
First Union National Bank
901 East Cary Street
Second Floor
Richmond, VA 23219
Attention: Corporate Trust Administration
Re: World Airways, Inc.
8.0% Convertible Senior Subordinated Debentures due
2004 (the "Securities")
Reference is hereby made to the Indenture dated as of August 1, 1997
(the "Indenture") between World Airways, Inc., as Issuer, and First Union
National Bank, as Trustee. Capitalized terms used but not defined herein shall
have the meanings given them in the Indenture.
This certificate relates to U.S. $____________________ aggregate
principal amount of Securities which are held in the form of the Regulation S
Temporary Global Security (ISIN No. USU9871WAA19) with the Depositary to effect
the transfer of beneficial interest in such Regulation S Temporary Global
Security for a beneficial interest in an equivalent aggregate principal amount
of the Regulation S Permanent Global Security.
In connection with such request, this is to certify that, based solely
on certificates we have received in writing, by tested telex or by electronic
transmission from member organizations appearing in our records as persons being
entitled to a portion of the principal amount of the Regulation S Temporary
Global Security set forth above (our "Member Organizations") substantially to
the effect set forth in the Indenture, U.S. $__________________ aggregate
principal amount of the Securities is owned by persons that are not citizens or
residents of the United States, domestic partnerships, domestic corporations or
any estate or trust the income of which is subject to United States federal
income taxation regardless of its source or any other person deemed a "U.S.
person" under Regulation S under the Securities Act of 1933, as amended.
We further certify (i) that we are not making available herewith for
exercise (or if relevant, exercise of any rights of collection of any interest)
any portion of the Regulation S Global Security excepted in such certificates
and (ii) that, as
<PAGE>
of the date hereof, we have not received any notification from any of our Member
Organizations to the effect that the statements made by such Member
Organizations with respect to any portion of the part submitted herewith for
exchange (or, if relevant, exercise or any rights of collection of any interest)
are no longer true and cannot be relied upon as of the date hereof.
We understand that this certificate is required in connection with
certain laws, and, if applicable, certain securities laws of the United States.
In connection therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certificate is or would be relevant, we
irrevocably authorize you to produce this certification to any interested party
in such proceedings.
Very truly yours,
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, BRUSSELS OFFICE AS
OPERATOR OF THE EUROCLEAR SYSTEM
CEDEL BANK, SOCIETE ANONYME
By:
Name:
Title:
Dated:
<PAGE>
EXHIBIT G
FORM OF CERTIFICATE FOR TRANSFERS OF
REGULATION S PERMANENT GLOBAL SECURITY
FOR CERTIFICATED SECURITIES
(Transfers pursuant to U304(a)(ix))
(Transferor)
First Union National Bank
901 East Cary Street
Second Floor
Richmond, VA 23219
Attention: Corporate Trust Administration
Re: World Airways, Inc.
8.0% Convertible Senior Subordinated Debentures due
2004 (the "Securities")
Reference is hereby made to the Indenture dated as of August 1, 1997
(the "Indenture") between World Airways, Inc., as Issuer, and First Union
National Bank, as Trustee. Capitalized terms used but not defined herein shall
have the meanings given them in the Indenture.
This certificate relates to U.S. $____________________ aggregate
principal amount of Securities which are held in the form of the Regulation S
Permanent Global Security (ISIN No. USU9871WAA19) with the Depositary in the
name of ______________________ [name of transferor] (the "Transferor") to effect
the transfer of the beneficial interest in such Regulation S Permanent Global
Security for a beneficial interest in an equivalent aggregate principal amount
of Certificated Securities.
In connection with such request, and in respect of such Securities, we
confirm that:
1. We are either not a U.S. person (as defined below) or we have
purchased our beneficial interest in the above referenced Regulation S
Permanent Global Security in a transaction that is exempt from the
registration requirements under the Securities Act.
2. We are delivering this certificate in connection with obtaining a
beneficial interest in Certificated Securities in exchange for our benefit
interest in the Regulation S Permanent Global Security.
For purposes of this certificate, "U.S. person" means (i) any
individual resident in the United States, (ii) any
<PAGE>
partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate or which an executor or administrator is a U.S.
person (other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any trustee is a
U.S. person (other than a trust of which at least one trustee is a non-U.S.
person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settlor if the trust is revocable) is a
U.S. person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. person), (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated, and owned, by accredited investors within the meaning of Rule
501(a) under the Securities Act who are not natural persons, estates or trusts);
provided, however, that the term "U.S. person" shall not include (A) a branch or
agency of a U.S. person that is located and operating outside the United States
for valid business purposes as a locally regulated branch or agency engaged in
the banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international organizations set forth in
Section 902(o)(7) of Regulation S under the Securities Act and any other similar
international organizations, and their agencies, affiliates and pension plans.
We irrevocably authorize you to produce this certificate or a copy
hereof to any interested party in any administrative or other proceedings with
respect to the matters covered by this certificate.
Very truly yours,
[TRANSFEROR]
By:
Name:
Title:
To be completed by the account
holder as, or the agent for,
the beneficial owner(s) of the
<PAGE>
Convertible Securities to
which this certificate
relates.
Dated:
Loc.: 3436
<PAGE>
$50,000,000
8.0% Convertible Senior Subordinated Debentures due 2004
REGISTRATION RIGHTS AGREEMENT
Dated as of August 26, 1997
by and among
World Airways, Inc.
and
Furman Selz LLC
and
Dillon, Read & Co. Inc.
<PAGE>
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is
made and entered into as of August 26, 1997 by and among World
Airways, Inc. a Delaware corporation (the "Company"), Furman Selz
LLC, and Dillon, Read & Co. Inc. as initial purchasers (the
"Initial Purchasers").
The Company proposes to issue and sell to the Initial
Purchasers (the "Initial Placement") $50,000,000 aggregate
principal amount (plus up to an additional $7,500,000 principal
amount to cover over-allotments, if any) of its 8.0% Convertible
Senior Subordinated Debentures due 2004 (the "Debentures"),
pursuant to the terms of a Purchase Agreement, dated as of
August 21, 1997 (the "Purchase Agreement"). As an inducement to
the Initial Purchasers to enter into the Purchase Agreement, and
in satisfaction of a condition to the Initial Purchasers'
obligations thereunder, the Company agrees with the Initial
Purchasers, (i) for the benefit of the Initial Purchasers and
(ii) for the benefit of the holders from time to time of the
Transfer Restricted Securities (as defined) whose names appear in
the register maintained by the Company's registrar in accordance
with the provisions of the Indenture (as defined in Section 1
hereof) (including the Initial Purchasers) (each of the foregoing
a "Holder," and collectively the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the
Purchase Agreement. As used in this Agreement, the following
capitalized terms shall have the following meanings:
"Affiliate" of any specified person means any other person
which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such specified person. For
purposes of this definition, control of a person means the power,
direct or indirect, to direct or cause the direction of the
management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in the State of New York
are not required to be open.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the voting common stock, $0.001 par
value per share, of the Company.
"Damages Payment Date" means with respect to the Debentures
or the underlying Common Stock, as applicable, each regular
interest payment date provided for in the Indenture.
"Debentures" means the 8.0% Convertible Senior Subordinated
Debentures due 2004 of the Company.
<PAGE>
"Effectiveness Target Date" has the meaning set forth in
Section 3(a) hereto.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the
Commission promulgated thereunder.
"Exchange Offer Registration Statement" has the meaning set
forth in Section 4 hereof.
"First Delivery Date" has the meaning set forth in the
Purchase Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture dated as of August 1, 1997,
between the Company and First Union National Bank, as trustee,
pursuant to which the Debentures are to be issued, as the same
may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"Initial Purchasers" has the meaning set forth in the
preamble hereto.
"Initial Placement" has the meaning set forth in the
preamble hereto.
"Liquidated Damages" shall have the meaning set forth in
Section 5 hereof.
"Losses" has the meaning set forth in Section 9(d) hereof.
"Majority Holders" means the Holders of a majority of the
aggregate principal amount of securities registered under a Shelf
Registration Statement (provided that Holders of Common Stock
issued upon conversion of Debentures shall be deemed to be
Holders of the aggregate principal amount of Debentures from
which such Common Stock was converted).
"New Debentures" means debt securities of the Company
identical in all material respects to the Debentures (except that
the New Debentures shall not be subject to restrictions on
transfer), to be issued pursuant to Section 4 hereof.
"Offering Memorandum" has the meaning set forth in the
Purchase Agreement.
"Person" means any individual, partnership, corporation,
limited liability company, trust or unincorporated organization,
or a government or agency or political subdivision thereof.
"Prospectus" means the prospectus included in any Shelf
Registration Statement (including, without limitation, a
prospectus that discloses information previously omitted from a
<PAGE>
prospectus filed as part of an effective registration statement
in reliance upon Rule 430A under the Securities Act), as amended
or supplemented by any prospectus supplement, with respect to the
terms of the offering of any portion of Transfer Restricted
Securities, covered by such Shelf Registration Statement, and all
amendments and supplements to the Prospectus, including post-
effective amendments, and all material incorporated by reference
into such Prospectus.
"Registration Default" has the meaning set forth in Section
5 hereto.
"Securities Act" means the Securities Act of 1933, as
amended from time to time, and the rules and regulations of the
Commission promulgated thereunder.
"Shelf Registration Period" has the meaning set forth in
Section 3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3
hereof which covers the Transfer Restricted Securities, on an
appropriate form subject to Rule 415 under the Securities Act, or
any similar rule that may be adopted by the Commission,
amendments and supplements to such registration statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Supplement Delay Period" means any period commencing on the
date of receipt by a Holder of Transfer Restricted Securities of
any notice from the Company of the existence of any fact or event
of the kind described in Section 6(c)(2) hereof and ending on the
date of receipt by such Holder of an amended or supplemented
Shelf Registration Statement or Prospectus, as contemplated by
Section 6(i) hereof, or the receipt by such Holder of written
notice from the Company (the "Advice") that the use of the
Prospectus may be resumed, and receipt of copies of any
additional or supplemental filings that are incorporated by
reference in the Prospectus.
"Transfer Restricted Securities" means each Debenture and
the Common Stock issuable upon conversion thereof until the
earlier of (i) the date on which such Debenture or the Common
Stock issuable upon conversion thereof has been effectively
registered under the Securities Act and disposed of pursuant to
an effective registration statement or exchanged for a New
Debenture pursuant to Section 4 hereof, (ii) the date on which
such Debenture or the Common Stock issuable upon conversion
thereof is distributed to the public pursuant to Rule 144 under
the Securities Act (or any similar provision then in effect) or
is saleable pursuant to Rule 144(k) under the Securities Act and
all legends thereon relating to transfer restrictions have been
removed, or (iii) the date on which such Debenture or the Common
<PAGE>
Stock issuable upon conversion thereof ceases to be outstanding.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the trustee with respect to the Debentures
under the Indenture.
2. Securities Subject to This Agreement. The securities
entitled to the benefits of this Agreement are the Transfer
Restricted Securities.
3. Shelf Registration.
(a) The Company shall, within 90 days after the First
Delivery Date, file with the Commission and thereafter shall use
its best efforts to cause to be declared effective under the
Securities Act by the 150th day after the First Delivery Date
(the "Effectiveness Target Date"), a Shelf Registration Statement
relating to the offer and sale of the Transfer Restricted
Securities by the Holders from time to time in accordance with
the methods of distribution elected by such Holders and set forth
in such Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the
Shelf Registration Statement continuously effective in order to
permit the Prospectus forming a part thereof to be usable by
Holders for a period of two years from the First Delivery Date or
such shorter period that will terminate when (i) all the Transfer
Restricted Securities covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement, (ii)
such Transfer Restricted Securities are distributed to the public
pursuant to Rule 144 under the Securities Act (or any similar
provision then in effect) or are saleable pursuant to Rule 144(k)
under the Securities Act, or (iii) the date on which there ceases
to be outstanding any Transfer Restricted Securities (in any such
case, such period being called the "Shelf Registration Period").
The Company shall be deemed not to have used its best efforts to
keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would
result in Holders of Transfer Restricted Securities covered
thereby not being able to offer and sell such securities during
that period, unless (i) such action is required by applicable
law, (ii) such action is taken by the Company in good faith and
for valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or
divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 6(i) hereof, if
applicable or (iii) such action is taken because of any fact or
circumstance giving rise to a Supplement Delay Period.
(c) The Company shall prepare and file with the Commission
such amendments, including post-effective amendments, to the
Shelf Registration Statement as may be necessary to keep such
<PAGE>
Registration Statement continuously effective for the applicable
time period; cause the related Prospectus to be supplemented by
any required Prospectus supplement and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in
force) under the Securities Act; and comply with the provisions
of the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by such Shelf Registration
Statement during the applicable period in accordance with the
intended methods of disposition by the sellers thereof set forth
in such Shelf Registration Statement as so amended or in such
Prospectus as so supplemented.
4. Registered Exchange Offer. If the Company determines
that it is permissible to do so, in lieu of filing the Shelf
Registration Statement or maintaining the effectiveness of the
Shelf Registration Statement as contemplated herein, the Company,
in its discretion, may file with the Commission a registration
statement on Form S-4 or other applicable form with respect to
the New Debentures (the "Exchange Offer Registration Statement")
and upon the Exchange Offer Registration Statement becoming
effective, offer the holders of Debentures the opportunity to
exchange their Debentures for an equal principal amount of New
Debentures. Upon the effectiveness of an Exchange Offer
Registration Statement, the holders of Debentures constituting
Transfer Restricted Securities shall not be entitled to include
any such Debentures in a Shelf Registration Statement hereunder;
provided, however, the effectiveness of an Exchange Offer
Registration Statement shall not affect the Company's obligations
hereunder with respect to any Holder's Common Stock constituting
Transfer Restricted Securities. Notwithstanding the foregoing, in
no event shall the Company have any obligation to file a
registration statement with respect to, or to register any
Debentures pursuant to an Exchange Offer Registration Statement.
5. Liquidated Damages. Subject to Section 6(m), if (a)
the Company fails to file the Shelf Registration Statement
required by Section 3 of this Agreement on or before the date
specified for such filing under Section 3(a) hereof, (b) such
Shelf Registration Statement is not declared effective by the
Commission on or prior to the Effectiveness Target Date or (c)
the Shelf Registration Statement is declared effective but
thereafter ceases to be continuously effective in connection with
resales of Transfer Restricted Securities during the Shelf
Registration Period (each such event referred to in clauses (a)
through (c) above a "Registration Default"), then the Company
will pay liquidated damages (the "Liquidated Damages") to each
Holder of Transfer Restricted Securities, with respect to the
first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per
$1,000 aggregate principal amount of the Transfer Restricted
Securities held by such Holder and, if applicable, $0.01 per week
per share (subject to adjustment in the event of stock splits,
stock consolidations, stock dividends, and the like) of Common
Stock constituting Transfer Restricted Securities to be
<PAGE>
registered under the Shelf Registration Statement. The amount of
the Liquidated Damages will increase by an additional $0.05 per
week per $1,000 aggregate principal amount of the Transfer
Restricted Securities held by each Holder and $0.01 per week per
share (subject to adjustment as set forth above) of Common Stock
constituting Transfer Restricted Securities to be registered
under the Shelf Registration Statement with respect to each
subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of Liquidated Damages of $0.25
per week per $1,000 aggregate principal amount of the Transfer
Restricted Securities held by each Holder and $0.05 per week per
share (subject to adjustment as set forth above) of Common Stock
constituting Transfer Restricted Securities to be registered
under the Shelf Registration Statement. In no event shall the
Company pay Liquidated Damages in excess of such maximum amount
set forth in the preceding sentence, regardless of whether one or
multiple Registration Defaults exist. A Registration Default
under clause (a) above shall be cured on the date that the Shelf
Registration Statement is filed with the Commission; a
Registration Default under clause (b) above shall be cured on the
date that the Shelf Registration Statement is declared effective
by the Commission; and a Registration Default under clause (c)
above shall be cured on the date of the Shelf Registration
Statement is declared effective. All accrued Liquidated Damages
will be paid by the Company on each Damages Payment Date in cash.
Such payment will be made to the Holder of the Global Securities
by wire transfer of immediately available funds or by federal
funds check and to Holders of Transfer Restricted Securities
represented by Certificated Securities, if any, by wire transfer
to the accounts specified by them or, if no such accounts have
been specified, by mailing checks to their registered addresses.
Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease. For purposes of this Section,
Debentures which have been converted into shares of Common Stock
constituting Transfer Restricted Securities shall be deemed to
bear the principal amount at which such securities were
converted.
The parties hereto agree that the Liquidated Damages
provided for in this Section 5 constitute a reasonable estimate
of the damages that may be incurred by Holders of Transfer
Restricted Securities by reason of the failure of the Shelf
Registration Statement to be filed, declared effective or
maintained effective, as the case may be, in accordance with the
provisions hereof.
6. Registration Procedures. In connection with any Shelf
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to the Initial Purchasers and
their counsel, not less than five Business Days prior to the
filing thereof with the Commission, a copy of any Shelf
Registration Statement and each amendment thereof, and each
amendment or supplement, if any, to the Prospectus included
<PAGE>
therein, and shall use its best efforts to reflect in each such
document, when so filed with the Commission, such comments as the
Initial Purchasers or their counsel may reasonably propose.
(b) The Company shall use its best efforts to ensure that
(i) any Shelf Registration Statement and any amendment thereto
and any Prospectus forming part thereof and any amendment or
supplement thereto complies in all material respects with the
Securities Act and the rules and regulations thereunder, (ii)
except for information provided by holders of Transfer Restricted
Securities for inclusion in any Shelf Registration Statement
pursuant to Section 6(m), as to which the Company makes no
representation, warranty, or undertaking, any Shelf Registration
Statement and any amendment or supplement thereto does not, when
it becomes effective, contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading and (iii) except for information provided by holders
of Transfer Restricted Securities for inclusion in any Shelf
Registration Statement pursuant to Section 6(m), as to which the
Company makes no representation, warranty, or undertaking, any
Prospectus forming part of any Shelf Registration Statement, and
any amendment or supplement to such Prospectus, does not include
an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not
misleading.
(c) (1) The Company shall advise the Initial Purchasers,
and, if requested by the Initial Purchasers, confirm such advice
in writing, when a Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when the Shelf
Registration Statement or any post-effective amendment thereto
has become effective.
(2) The Company shall advise the Initial Purchasers
and their counsel and, if requested by the Initial Purchasers,
confirm such advice in writing:
(i) of any request by the Commission for
amendments or supplements to the Shelf Registration
Statement or the Prospectus included therein;
(ii) of the initiation by the Commission of
proceedings relating to a stop order suspending the
effectiveness of the Shelf Registration Statement;
(iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Shelf
Registration Statement;
(iv) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the securities included in the Shelf
<PAGE>
Registration Statement for sale in any jurisdiction or
the initiation or threatening of any proceeding for
such purpose; and
(v) of the existence of any fact and the
happening of any event (including, without limitation,
pending negotiations relating to, or the consummation
of, a transaction or the occurrence of any event which
would require additional disclosure of material non-
public information by the Company in the Shelf
Registration Statement as to which the Company has a
bona fide business purpose for preserving confidential
or which renders the Company unable to comply with
Commission requirements) that, in the opinion of the
Company, makes untrue any statement of a material fact
made in its Shelf Registration Statement, the
Prospectus or any amendment or supplement thereto or
any document incorporated by reference therein or
requires the making of any changes in the Shelf
Registration Statement or the Prospectus so that, as of
such date, the statements therein are not misleading
and do not omit to state a material fact required to be
stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not
misleading.
Such Advice may be accompanied by an instruction to suspend the
use of the Prospectus until the requisite changes have been made.
(d) The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of the Shelf
Registration Statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of the Transfer
Restricted Securities for sale in any jurisdiction, at the
earliest possible time.
(e) The Company shall furnish to each selling Holder named
in the Shelf Registration Statement, without charge, at least one
conformed copy of such Shelf Registration Statement and any post-
effective amendment thereto, including financial statements and
all exhibits and schedules (including those incorporated by
reference).
(f) The Company shall, during the Shelf Registration
Period, deliver to each Holder of Transfer Restricted Securities
named in the Shelf Registration Statement, without charge, as
many copies of the Prospectus (including each preliminary
Prospectus) included in such Shelf Registration Statement and any
amendment or supplement thereto as such Holder may reasonably
request; and, subject to any notice by the Company in accordance
with Section 7(b), the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the
selling Holders for the purposes of offering and resale of the
<PAGE>
Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto.
(g) Prior to the offering of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, the Company shall
use its best efforts to: (i) register or qualify or cooperate
with the Initial Purchasers acting on behalf of the Holders, and
their counsel, in connection with the registration or
qualification (or exemption from such registration or
qualification) of such Transfer Restricted Securities for offer
and sale under the securities or blue sky laws of such
jurisdictions of the United States as any such Holders reasonably
request in writing; (ii) keep each such registration or
qualification (or exemption therefrom) effective during the
period the Shelf Registration Statement is required to be kept
effective; and (iii) do any and all other acts or things
necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by
the Shelf Registration Statement; provided, however, that the
Company will not be required to qualify generally to do business
in any jurisdiction where it is not then so qualified or to take
any action which would subject it to general service of process
or to taxation in any such jurisdiction where it is not then so
subject.
(h) The Company shall cooperate with the Holders of
Transfer Restricted Securities to facilitate the timely
preparation and delivery of certificates representing Transfer
Restricted Securities to be sold pursuant to the Shelf
Registration Statement free of any restrictive legends and in
such denominations and registered in such names as such Holders
may request in writing at least two Business Days prior to sales
of securities pursuant to such Shelf Registration Statement.
(i) Upon the occurrence of any event contemplated by
paragraph (c)(2)(v) hereof, the Company shall promptly prepare a
post-effective amendment to the Shelf Registration Statement or
an amendment or supplement to the related Prospectus or any
document incorporated therein by reference or file any other
required document so that as thereafter delivered to purchasers
of the Transfer Restricted Securities covered thereby, the
Prospectus will not include an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
(j) Not later than the effective date of any such Shelf
Registration Statement hereunder, the Company shall cause to be
provided CUSIP numbers for the Transfer Restricted Securities
registered under such Shelf Registration Statement, and provide
the Trustee with printed certificates for such Transfer
Restricted Securities where necessary, in a form eligible for
deposit with The Depository Trust Company.
<PAGE>
(k) The Company shall use its best efforts to comply with
all applicable rules and regulations of the Commission and shall
make generally available to its security holders in a regular
filing on Form 10-Q or Form 10-K an earnings statement satisfying
the provisions of Rule 158 (which need not be audited) for the
twelve-month period commencing after effectiveness of the Shelf
Registration Statement.
(l) The Company shall cause the Indenture to be qualified
under the Trust Indenture Act in a timely manner not later than
the effective date of the Registration Statement.
(m) The Company may require each Holder of Transfer
Restricted Securities to be sold pursuant to the Shelf
Registration Statement to furnish to the Company within 10
Business Days after written request for such information has been
made by the Company, such customary information regarding the
Holder and the distribution of such securities as the Company may
from time to time reasonably require for inclusion in such Shelf
Registration Statement and such other information as may be
necessary or advisable in the reasonable opinion of the Company
and its counsel, in connection with such Shelf Registration
Statement. No Holder of Transfer Restricted Securities shall be
entitled to the benefit of any Liquidated Damages under Section 5
of this Agreement or be entitled to use the Prospectus unless and
until such Holder shall have furnished the information required
by this Section 6(m) and all such information required to be
disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
(n) The Company shall, if requested, promptly incorporate
in the Shelf Registration Statement or Prospectus, if necessary,
pursuant to a supplement or post-effective amendment to the Shelf
Registration Statement, such information as the Initial
Purchasers acting on behalf of the Holders reasonably request to
have included therein and shall make all required filings of such
Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment.
(o) The Company shall (i) make reasonably available at
reasonable time for inspection by the Holders of Transfer
Restricted Securities to be registered thereunder, and the
counsel or other agent retained by the Initial Purchasers on
behalf of the Holders, at the office where normally kept during
normal business hours, all financial and other records, pertinent
corporate documents and properties of the Company and its
subsidiaries, and cause the Company's office, directors and
employees to supply all relevant information reasonably requested
by the Holders, attorney, accountant or other agent in connection
with the Shelf Registration Statement as is customary for similar
due diligence examinations, provided, however, that such persons
shall first agree in writing with the Company that any
<PAGE>
information that is reasonably and in good faith designated by
the Company in writing as confidential at the time of delivery of
such information shall be kept confidential by such persons; and
(ii) deliver such documents and certificates as may be reasonably
requested by the Initial Purchasers acting on behalf of the
Holders, including those to evidence compliance with Section
6(i). The foregoing actions set forth in clause (ii) of this
Section 6(o) shall be performed at the effectiveness of such
Shelf Registration Statement and each post-effective amendment
thereto.
(p) The Company shall list the Common Stock covered by such
Shelf Registration Statement on any securities exchange on which
the Common Stock is then listed.
7. Holders' Agreements. Each Holder of Transfer
Restricted Securities, by the acquisition of such Transfer
Restricted Securities agrees:
(a) To furnish the information required to be furnished
pursuant to Section 6(m) hereof within the time period set forth
therein. The Company may exclude from any Shelf Registration
Statement the Transfer Restricted Securities of any Holder who
does not furnish such information. Each Holder of Transfer
Restricted Securities shall promptly furnish to the Company all
such information required to be disclosed in order to make the
information previously furnished to the Company by such Holder
not materially misleading.
(b) That upon receipt of a notice of the commencement of a
Supplement Delay Period, it will keep the fact of such notice
confidential, forthwith discontinue disposition of its Transfer
Restricted Securities, as the case may be, pursuant to the Shelf
Registration Statement, and will not deliver any Prospectus
forming a part thereof until receipt of the amended or
supplemented Shelf Registration Statement or Prospectus, as
applicable, as contemplated by Section 6(i) hereof, or until
receipt of the Advice.
(c) If so directed by the Company in a notice of the
commencement of a Supplement Delay Period, each Holder of
Transfer Restricted Securities, as the case may be, will deliver
to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the
Prospectus covering the Transfer Restricted Securities, as the
case may be.
(d) Sales of such Transfer Restricted Securities pursuant
to a Shelf Registration Statement shall only be made in the
manner set forth in such currently effective Shelf Registration
Statement.
8. Registration Expenses. The Company shall bear its own
expenses incurred in connection with the performance of its
<PAGE>
obligations under Sections 3, 5 and 6 hereof and will reimburse
the Holders for the cost of qualifying the Transfer Restricted
Securities for sale pursuant to the various state "blue sky" laws
(including reasonable attorney's fees in connection therewith).
The Holders will otherwise bear their own expenses, including the
fees and disbursements of their counsel designated by the Initial
Purchasers to act as counsel for the Holders in connection
therewith.
9. Indemnification and Contribution.
(a) In connection with the Shelf Registration Statement,
the Company will indemnify and hold harmless each Holder of
Transfer Restricted Securities covered thereby, the directors,
officers, employees and agents of each such Holder and each
person who controls any such Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, liabilities,
expenses and damages, joint or several (including any and all
investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claim asserted), to which they,
or any of them, may become subject under the Securities Act, the
Exchange Act or other federal, state or foreign statutory law or
regulation, at common law or otherwise, insofar as such losses,
claims, liabilities, expenses and damages arise out of or are
based upon any untrue statement or alleged untrue statement of a
material fact contained in the Shelf Registration Statement as
originally filed or in any amendment thereof, or in any
preliminary Prospectus or Prospectus, or in any amendment thereof
or supplement thereto, or the omission or alleged omission to
state in such documents a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be
liable to the extent that any such loss, claim, liability expense
or damage arises out of or is based on any such untrue statement
or omission or alleged untrue statement or omission made therein
in reliance on and in conformity with information relating to any
Holder of Transfer Restricted Securities furnished in writing to
the Company by any such Holder expressly for inclusion therein.
This indemnity agreement will be in addition to any liability
which the Company might otherwise have.
(b) Each Holder of Transfer Restricted Securities covered
by the Shelf Registration Statement will severally indemnify and
hold harmless the Company, each person who controls the Company
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, each director of the Company and
each officer of the Company to the same extent as the foregoing
indemnity from the Company to each such Holder, but only insofar
as losses, claims, liabilities, expenses or damages arise out of
or are based on any untrue statement or omission or alleged
untrue statement or omission made in reliance on and in
conformity with information relating to such Holder furnished to
<PAGE>
the Company by or on behalf of such Holder expressly for use in
the Shelf Registration Statement as originally filed or in any
amendment thereof, or in any preliminary Prospectus or
Prospectus, or in any amendment thereof or supplement thereto.
This indemnity agreement will be in addition to any liability
that such Holder might otherwise have.
(c) Any party that proposes to assert the right to be
indemnified under this Section 9 will, promptly after receipt of
notice of commencement of any action against such party in
respect of which a claim is to be made against an indemnifying
party or parties under this Section 9, notify each indemnifying
party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying
party (i) will not relieve it from any liability that it may have
to any indemnified party under the foregoing provisions of this
Section 9 unless, and only to the extent that, it did not
otherwise learn of such action and such omission results in the
forfeiture of substantive rights or defenses by the indemnifying
party and (ii) will not, in any event relieve the indemnifying
party from any obligations to any indemnified party other than
the indemnification obligations in Sections 9(a) and 9(b) hereof.
If any such action is brought against any indemnified party and
it notifies the indemnifying party of its commencement, the
indemnifying party will be entitled to participate in and, to the
extent that it elects by delivering written notice to the
indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume
the defense of the action, with counsel satisfactory to the
indemnified party, and after notice from the indemnifying party
to the indemnified party of its election to assume the defense,
the indemnifying party will not be liable to the indemnified
party for any legal or other expenses except as provided below
and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense.
The indemnified party will have the right to employ its own
counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the
indemnified party has been authorized in writing by the
indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel to the indemnified party
that there may be legal defense available to it or other
available indemnified parties that are different from or in
addition to those available to the indemnifying party), (3) a
conflict or potential conflict exists (based on advice of counsel
to the indemnified party) between the indemnified party and the
indemnifying party (in which case the indemnifying party will not
have the right to direct the defense of such action on behalf of
the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within
a reasonable time after receiving notice of the commencement of
the action, in each of which cases the reasonable fees,
<PAGE>
disbursements and other charges of counsel will be at the expense
of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be
liable for the reasonable fees, disbursements and other charges
of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such indemnified party or
parties. Such firm shall be designated in writing by the Majority
Holders in the case of parties indemnified pursuant to Section
9(a) and by the Company, in the case of parties indemnified
pursuant to Section 9(b). All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as
they are incurred. No indemnifying party shall, without the prior
written consent of each indemnified party, settle or compromise
or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding relating to the matters
contemplated by this Section 9 (whether or not any indemnified
party is a party thereto), unless such settlement, compromise or
consent includes an unconditional release of each indemnified
party from all liability arising or that may arise out of such
claim, action or proceeding.
(d) In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 9 is applicable in
accordance with its terms but for any reason is held to be
unavailable from the Company or the Holders of Transfer
Restricted Securities, or insufficient, the Company and such
Holders will contribute to the total losses, claims, liabilities,
expenses and damages (including any investigative, legal and
other expenses reasonably incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or
any claim asserted, but after deducting any contribution received
by the Company from persons other than such Holders and any
contribution received by any of the Holders from persons other
than the Company, such as persons who control the Company or a
Holder within the meaning of the Securities Act or the Exchange
Act and officers and directors of the Company, who also may be
liable for contribution) (collectively, "Losses") to which the
Company and any one or more of such Holders of Transfer
Restricted Securities may be subject in such proportion as shall
be appropriate to reflect the relative benefits received by the
Company on the one hand and such Holders on the other. The
relative benefits received by the Company shall be deemed to be
equal to the total net proceeds from the Initial Placement
(before deducting expenses) as set forth on the cover page of the
Offering Memorandum. Benefits received by the Initial Purchasers
shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Offering
Memorandum, and benefits received by any other Holders shall be
deemed to be equal to the value of receiving Debentures or Common
Stock issuable upon conversion thereof, as applicable, registered
under the Securities Act. If, but only if, the allocation
provided by this Section is not permitted by applicable law, the
<PAGE>
allocation of contribution shall be made in such proportion as is
appropriate to reflect not only the relative benefits referred to
in this Section but also the relative fault of the Company, on
the one hand, and the Holders, on the other, with respect to the
statements or omissions which resulted in such loss, claim,
liability, expense or damage, or action in respect thereof, as
well as any other relevant equitable considerations with respect
to such offering. Such relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a fact
relates to information supplied by the Company or the Holders,
the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement
or omission. The Company and the Holders agree that it would not
be just and equitable if contributions pursuant to this Section
9(d) were to be determined by pro rata allocation (even if the
Holders were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the
equitable considerations referred to herein. The amount paid or
payable by any party as a result of the loss, claim, liability,
expense or damage, or action in respect thereof, referred to
above in this Section 9(d) shall be deemed to include, for
purpose of this Section 9(d), any legal or other expenses
reasonably incurred by such party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9(d), in no case
shall any Initial Purchaser be responsible, in the aggregate, for
any amount in excess of the purchase discount or commission
applicable to such Debentures, as set forth on the cover page of
the Offering Memorandum. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
Holders' obligations to contribute as provided in this Section
9(d) are several and not joint. For purposes of this Section
9(d), any person who controls the Company or a Holder within the
meaning of the Securities Act will have the same rights to
contribution as that party, and each officer or director of the
Company or such Holder will have the same rights to contribution,
as the Company or such Holder, as applicable, subject in each
case to the provisions hereof. Any party entitled to contribution
promptly after receipt of notice of commencement of any action
against such party in respect of which a claim for contribution
may be made under this Section 9(d), will notify any such party
or parties from whom contribution may be sought, but the omission
so to notify will not relieve the party or parties from whom
contribution may be sought from any other obligation it or they
may have under this Section 9(d). No party will be liable for
contribution with respect to any action or claim settled without
its written consent (which consent will not be unreasonably
withheld or delayed).
(e) The indemnity and contribution agreements contained in
this Section 9 will remain in full force and effect, regardless
<PAGE>
of any investigation made by or on behalf of any Holder or the
Company or any of the officers, directors or controlling persons
referred to in this Section 9, and will survive the sale by a
Holder of securities covered by the Shelf Registration Statement.
10. Rules 144 and 144A. The Company shall use its best
efforts to file the reports required to be filed by it under the
Securities Act and the Exchange Act in a timely manner and, if at
any time it is not required to file such reports but in the past
had been required to or did file such reports, it will, upon the
request of any holder of Transfer Restricted Securities, make
available other information as reasonably required by, and so
long as reasonably necessary to permit, sales of its Transfer
Restricted Securities pursuant to Rule 144 and Rule 144A. The
Company covenants that, for so long as a sale of Transfer
Restricted Securities is not permitted pursuant to a Shelf
Registration Statement, it will take such further action as any
Holder of Transfer Restricted Securities may reasonably request,
all to the extent required from time to time, to enable such
Holder to sell securities without registration under the
Securities Act within the limitation of the exemptions provided
by Rule 144 and 144A (including the requirements of Rule
144A(d)(4)). Notwithstanding the foregoing, nothing in this
Section 10 shall be deemed to require the Company to register any
of its securities pursuant to the Exchange Act.
11. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of
its obligations under this Agreement, each Holder, in addition to
being entitled to execute all rights granted by law, including
recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary
damages (including the Liquidated Damages contemplated hereby)
would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate. The remedies
provided herein are cumulative and not exclusive of any remedies
provided by law.
(b) No Inconsistent Agreements. The Company has not, as of
the date hereof, entered into, nor shall it, on or after the date
hereof, enter into, any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders
herein or conflicts with the provisions hereof.
(c) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be
amended, qualified, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of the
Holders of at least a majority of the then outstanding aggregate
principal amount of Transfer Restricted Securities; provided,
<PAGE>
however, that, with respect to any matter that directly or
indirectly affects the rights of any Initial Purchaser hereunder,
the Company shall obtain the written consent of each such Initial
Purchaser against which such amendment, qualification,
supplement, waiver or consent is to be effective. Notwithstanding
the foregoing (except the foregoing proviso), a waiver or consent
to departure from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose
securities are being sold pursuant to a Shelf Registration
Statement as that does not directly or indirectly affect the
rights of other Holders may be given by the Majority Holders,
determined on the basis of Debentures being sold rather than
registered under such Shelf Registration Statement.
(d) Notices. All statements, requests, notices and
agreements hereunder shall be in writing or by telegram if
promptly confirmed in writing, and shall be sufficient in all
respects if delivered or sent by reliable courier, first-class
mail, telex, or facsimile transmission:
(1) if to a Holder, at the most current address given
by such Holder to the Company in accordance with the
provisions of this Section 11(d), which address initially
is, with respect to each Holder, the address of such Holder
maintained by the registrar under the Indenture, with a copy
in like manner to Furman Selz LLC;
(2) if to the Initial Purchasers, initially at the
address set forth in the Purchase Agreement; and
(3) if to the Company, initially at its address set
forth in the Purchase Agreement.
Any such statements, requests, notices or agreements shall
take effect upon receipt.
The Initial Purchasers or the Company by notice to the other
may designate additional or different addresses for subsequent
notices or communications.
(e) Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of
each of the parties hereto, including, without the need for an
express assignment or any consent by the Company thereto,
subsequent Holders of Debentures. The Company hereby agrees to
extend the benefits of this Agreement to any Holder of Debentures
and any such Holder may specifically enforce the provisions of
this Agreement as if an original party hereto. The Company may
not assign its rights or obligations hereunder without the prior
written consent of the Majority Holders of Transfer Restricted
Securities.
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate
<PAGE>
counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute
one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof. All references made in this Agreement
to "Section" and "paragraph" refer to such Section or paragraph
of this Agreement, unless expressly stated otherwise.
(h) Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New York without regard
to the conflict of law provisions thereof.
(i) Submission to Jurisdiction. The Company hereby
irrevocably submits to the non-exclusive jurisdiction of any New
York state court sitting in the Borough of Manhattan in the City
of New York or any federal court sitting in the Borough of
Manhattan in the City of New York in respect of any suit, action
or proceeding arising out of or relating to this Agreement, and
irrevocably accepts for itself and in respect of its property,
generally and unconditionally, jurisdiction of the aforesaid
courts. The Company irrevocably waives, to the fullest extent it
may effectively do so under applicable law any objection that it
may now or hereafter have to the laying of the venue of any such
suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum.
(j) Severability. In the event that any one of more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability
of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges
of the parties shall be enforceable to the fullest extent
permitted by law.
(k) Attorneys' Fees. In any action or proceeding brought
to enforce any provision of this Agreement, or where any
provision hereof is validly asserted as a defense, the prevailing
party, as determined by the court, shall be entitled to recover
its reasonable attorneys' fees in addition to any other available
remedy.
(l) Approval of Holders. Whenever the consent or approval
of holders of a specified percentage of Transfer Restricted
Securities is required hereunder, Transfer Restricted Securities
held by the Company or its affiliates (as such term is defined in
Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the
holders of such required percentage. For purposes of calculating
the consent or approval of holders of a majority of the then
<PAGE>
outstanding aggregate principal amount of Transfer Restricted
Securities, Transfer Restricted Securities which have been
converted into shares of Common Stock shall be deemed to bear the
principal amount at which such securities were converted.
(m) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement relating to the
registration under the Securities Act of the Transfer Restricted
Securities and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein and the
registration rights granted by the Company with respect to the
Debentures sold pursuant to the Purchase Agreement and the Common
Stock issuable upon conversion of the Debentures. There are no
restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein, with respect to the
registration rights granted by the Company with respect to the
Debentures or the Common Stock issuable upon conversion of the
Debentures. This Agreement supersedes all prior agreements and
understandings among the parties with respect to such
registration rights.
(n) Further Assurances. Each of the parties hereto shall
use all reasonable efforts to take, or cause to be taken, all
appropriate action, do or cause to be done all things reasonably
necessary, proper or advisable under applicable law, and execute
and deliver such documents and other papers, as may be required
to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective
the transactions contemplated hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
WORLD AIRWAYS, INC.
By:
-------------------------
Name: Mark Lynch
Title: Chief Financial
Officer
FURMAN SELZ LLC
DILLON, READ & CO. INC.
The Initial Purchasers
By: FURMAN SELZ LLC
By:
---------------------------
Name: William Hallisey
Title: Managing Director
<PAGE>
WORLD AIRWAYS, INC.
$50,000,000
8.0% Convertible Senior Subordinated Debentures Due 2004
INITIAL PURCHASE AGREEMENT
August 21, 1997
FURMAN SELZ LLC
DILLON, READ & CO. INC.
c/o Furman Selz LLC
230 Park Avenue
New York, New York 10169
Ladies and Gentlemen:
1. Introduction. World Airways, Inc., a Delaware
corporation (the "Company") proposes to issue and sell to you
(the "Initial Purchasers") $50,000,000 aggregate principal
amount of its 8.0% Convertible Senior Subordinated Debentures
Due 2004 (the "Firm Securities") and also proposes to issue and
sell to the Initial Purchasers, at their option, up to an
additional $7,500,000 aggregate principal amount of its 8.0%
Convertible Senior Subordinated Debentures Due 2004 (the
"Additional Securities," and together with the Firm Securities,
the "Securities"). The Securities are to be issued under an
indenture (the "Indenture") to be dated as of August 1, 1997 by
and between the Company and First Union National Bank, as
trustee (the "Trustee"). The Securities will be convertible, at
any time after the 60th day following the date of original
issuance thereof, at the holder's option into shares (the
"Conversion Shares") of the Company's common stock, par value
$0.001 per share (the "Common Stock"), at a conversion price of
$8.90 per share, subject to adjustment in certain circumstances.
The Securities will be offered and sold without being
registered under the Securities Act of 1933, as amended (the
"Act"), to certain investors that are (i) accredited investors
("Accredited Investors"), as such term is defined in clause (1),
(2), (3), (5), (6) or (7) of Rule 501 of Regulation D under the
Act ("Regulation D") (ii) qualified institutional buyers
("QIBs") as such term is defined in Rule 144A promulgated under
the Act ("Rule 144A"); or (iii) "outside the United States" and
are not "U.S. Persons", as such terms are defined in Regulation
S under the Act ("Regulation S"). The offering and resale of
the Securities as contemplated herein is hereinafter referred to
as the "Offering."
The Initial Purchasers and their respective direct and
indirect transferees of the Securities will be entitled to the
benefits of the Registration Rights Agreement, substantially in
the form attached hereto as Exhibit A (the "Registration Rights
Agreement"), pursuant to which the Company has agreed, among
other things, to file a registration statement (the
<PAGE>
"Registration Statement") with the Securities and Exchange
Commission (the "Commission") registering the Securities and the
Conversion Shares under the Act within 90 days of the Closing
Date, as defined below.
2. Representations and Warranties. The Company
represents and warrants to and agrees with each of the Initial
Purchasers that:
(a) The preliminary offering memorandum dated August
5, 1997 (the "Preliminary Memorandum") and the final
offering memorandum dated August 21, 1997 (the "Final
Memorandum") have been prepared by the Company setting
forth or including a description of the terms of the
Securities, the terms of the Offering, a description of the
Company and any material developments relating to the
Company occurring after the date of the most recent
historical financial statements included therein. No stop
order or similar order preventing or suspending the use of
the Preliminary Memorandum or the Final Memorandum has been
issued; no proceedings for that purpose are pending, or, to
the knowledge of the Company, contemplated by any
securities or other governmental authority in any
jurisdiction (including, without limitation, the Securities
and Exchange Commission (the "Commission")); no order
asserting that any of the transactions contemplated by this
Agreement, Preliminary Memorandum or the Final Memorandum
are subject to the registration requirements of the Act has
been issued; and no securities or other governmental
authority (including, without limitation, the Commission)
has requested any additional information to be included in
the Preliminary Memorandum or Final Memorandum or
otherwise. Copies of the Preliminary Memorandum and the
Final Memorandum have been delivered to the Initial
Purchasers. The Company will not distribute any
Preliminary Memorandum or Final Memorandum or any other
offering document or prepare any amendment or supplement to
the Preliminary Offering Memorandum or the Final Offering
Memorandum to which the Initial Purchasers shall reasonably
object in writing after being furnished with a copy
thereof. Each of the Preliminary Memorandum as of the date
thereof and the Final Memorandum as of the date thereof and
at all time subsequent thereto up to the Closing Date (as
defined in Section 3 below) and the Option Closing Date (as
defined in Section 10 below) (A) contained or will contain
all statements required to be stated therein in accordance
with, and complied or will comply in all material respects
with the requirements of, Rule144A and (B) did not or will
not include any untrue statement of a material fact or omit
to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading. The foregoing
provisions of this section 2(a) shall not apply to
statements or omissions made in reliance upon and in
<PAGE>
conformity with information furnished to the Company in
writing by the Initial Purchasers expressly for use in the
Preliminary Memorandum or the Final Memorandum. Any
reference herein to the Preliminary Memorandum or the Final
Memorandum shall be deemed to include all amendments and
supplements thereto and any documents filed under the
Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission (the "Rules and
Regulations") thereunder (collectively, the "Exchange Act")
which are incorporated by reference therein. As used
herein, the term "Incorporated Documents" means the
documents which at the time are incorporated by reference
in the Preliminary Memorandum, the Final Memorandum or any
amendment or supplement thereto.
(b) The Incorporated Documents heretofore filed were
filed in a timely manner and, when they were filed (or, if
any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material
respects to the requirements of the Exchange Act and did
not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; and any further Incorporated
Documents will, when so filed, be filed in a timely manner
and conform in all material respects to the requirements of
the Exchange Act and will not contain an untrue statement
of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) The Company (A) is a duly incorporated and
validly existing corporation in good standing under the
laws of its jurisdiction of incorporation, with full power
and authority (corporate and other) to own or lease its
properties and to conduct its business as described in the
Final Memorandum (or, if the Final Memorandum is not in
existence, the Preliminary Memorandum) and (B) is duly
qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the conduct of
its business requires such qualification (except for those
jurisdictions in which the failure so to qualify has not
had and will not have a Material Adverse Effect (as
hereinafter defined)). The Company has no subsidiaries.
"Material Adverse Effect" means, when used in connection
with the Company, any development, change or effect that is
materially adverse to the business, properties, assets, net
worth, condition (financial or other), results of
operations or prospects of the Company.
(d) The Company has the duly authorized and validly
outstanding capitalization set forth under the caption
"Capitalization" in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary
<PAGE>
Memorandum) and will have the adjusted capitalization set
forth therein on the Closing Date and the Option Closing
Date, based on the assumptions set forth therein. The
securities of the Company conform to the descriptions
thereof contained in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary
Memorandum). The outstanding shares of Common Stock have
been duly authorized and validly issued by the Company and
are fully paid and nonassessable. Except as created hereby
or referred to in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary
Memorandum), there are no outstanding options, warrants,
rights or other arrangements requiring the Company at any
time to issue any capital stock. No holders of outstanding
shares of capital stock of the Company are entitled as such
to any preemptive or other rights to subscribe for any of
the Securities or Conversion Shares and neither the filing
of the Registration Statement nor the Offering gives rise
to any rights, other than those which have been waived or
satisfied and those contained in the Registration Rights
Agreement, dated as of October 30, 1993, between the
Company and MHS (the "MHS Registration Rights"), for or
relating to, the registration of any securities of the
Company. The Company has full legal right, power and
authority to issue the Securities and perform its
obligations thereunder. The Securities have been duly
authorized; on the Closing Date or the Option Closing Date
(as the case may be), after payment therefor in accordance
with the terms of this Agreement and when the Securities
have been executed and delivered by the Company and
authenticated by the Trustee in accordance with the
provisions of the Indenture, (i) the Securities will have
been duly and validly executed, authenticated, issued and
delivered, will not have been issued in violation of or
subject to any preemptive or other similar right and will
(A) constitute valid and legally binding obligations of the
Company enforceable against the Company in accordance with
their terms and entitled to the benefits provided in the
Indenture and the Registration Rights Agreement, subject,
as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general
principles of equity, and (B) be convertible into the
Conversion Shares in accordance with the terms of the
Indenture, and (ii) good and marketable title to the
Securities will pass to the Initial Purchasers on the
Closing Date or the Option Closing Date (as the case may
be) free and clear of any lien, encumbrance, security
interest, claim or other restriction whatsoever. The
Conversion Shares have been duly and validly authorized and
reserved for issuance upon conversion of the Securities
and, when issued and delivered upon such conversion, will
be duly and validly issued and outstanding, fully paid and
nonassessable and will not have been issued in violation of
<PAGE>
or subject to any preemptive or other similar rights. The
Company has received, subject to notice of issuance,
approval to have the Debentures designated as PORTAL
securities in accordance with the rules and regulations
adopted by the National Association of Securities Dealers,
Inc. (the "NASD") relating to Private Offering, Resale and
Trading through Automated Linkages ("PORTAL") Market. The
Company knows of no reason or set of facts which is likely
to adversely affect such approval or the approvals referred
to below in Section 5.
(e) The Securities are in the form contemplated by
the Indenture and the Securities and the Conversion Shares,
when issued and, with respect to the Securities,
authenticated by the Trustee in accordance with the
Indenture, will conform to the respective descriptions
thereof set forth in the Final Memorandum. None of the
Company's issuance of the Securities or the Conversion
Shares or its performance thereunder conflicts with or will
conflict with or results or will result in any breach or
violation of any of the terms or provisions of or
constitutes or will constitute a default under, or causes
or will cause (or permits or will permit) the maturation or
acceleration of any liability or obligation or the
termination of any right under, or result in the creation
or imposition of any lien, charge, or encumbrance upon, any
property or assets of the Company pursuant to the terms of
(i) the certificate of incorporation or by-laws of the
Company, (ii) any indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note
agreement or other agreement or instrument to which the
Company is a party or by which it may be bound or to which
any of its assets, property or business (including shares
of the Common Stock) is or may be subject or (iii) any
statute, judgment, decree, order, rule or regulation
applicable to the Company of any government, arbitrator,
court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its activities or
properties.
(f) The financial statements and the related notes
and schedules thereto included in the Final Memorandum (or,
if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) fairly present the financial
condition, results of operations, stockholders' equity and
cash flows of the Company at the dates and for the periods
specified therein. Such financial statements and the
related notes and schedules thereto have been prepared in
accordance with generally accepted accounting principles
consistently applied throughout the periods involved
(except as otherwise noted therein) and such financial
statements as are audited have been examined by KPMG Peat
Marwick LLP, who are independent public accountants within
<PAGE>
the meaning of the Act and the Rules and Regulations, as
indicated in their reports filed therewith. The selected
financial information and operating data set forth under
the captions "Summary Financial and Operating Data" and
"Selected Financial and Operating Data" in the Final
Memorandum (or, if the Final Memorandum is not in
existence, the Preliminary Memorandum) have been prepared
on a basis consistent with the financial statements of the
Company.
(g) The Company has filed all necessary federal,
state and local income, franchise and other material tax
returns and has paid all taxes shown as due thereunder, and
the Company has no knowledge of any tax deficiency which
might be assessed against the Company which, if so
assessed, may have a Material Adverse Effect.
(h) The Company maintains insurance of the types and
in amounts which it reasonably believes to be adequate for
its business in such amounts and with such deductibles as
is customary for companies in the same or similar business,
all of which insurance is in full force and effect.
(i) Except as disclosed in the Final Memorandum (or,
if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum), there is no pending action,
suit, proceeding or investigation or, to the Company's best
knowledge, threatened action, suit, proceeding or
investigation before or by any court, regulatory body or
administrative agency or any other governmental agency or
body, domestic or foreign, which (i) questions the validity
of the capital stock of the Company or this Agreement or of
any action taken or to be taken by the Company pursuant to
or in connection with this Agreement or (ii) may have a
Material Adverse Effect.
(j) The Company has full legal right, power and
authority to enter into this Agreement, the Indenture, the
Share Repurchase Agreement (which is referred to as the
"Agreement" in the most recent Preliminary Memorandum and
the obligations of the Company under which being subject to
the approval of its Board of Directors), and the
Registration Rights Agreement and to consummate the
transactions provided for herein and therein and perform
its obligations thereunder. Each of this Agreement and the
Registration Rights Agreement has been or at the Closing
Date will have been duly authorized, executed and delivered
by the Company and assuming each is a binding agreement of
the other party or parties thereto, constitutes a legal,
valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as
such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting the
<PAGE>
enforcement of creditors' rights and the application of
equitable principles relating to the availability of
remedies and except as rights to indemnity or contribution
may be limited by federal or state securities laws and the
public policy underlying such laws), and, subject to the
approval of the Company's Board of Directors in the case of
the Share Repurchase Agreement, none of the Company's
execution or delivery of this Agreement, the Indenture, the
Share Repurchase Agreement or the Registration Rights
Agreement, its performance hereunder or thereunder, its
consummation of the transactions contemplated herein or
therein, its application of the net proceeds of the
Offering in the manner set forth under the caption "Use of
Proceeds" or the conduct of its business as described in
the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum),
conflicts or will conflict with or results or will result
in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default
under, causes or will cause (or permits or will permit) the
maturation or acceleration of any liability or obligation
or the termination of any right under, or result in the
creation or imposition of any lien, charge, or encumbrance
upon, any property or assets of the Company pursuant to the
terms of (i) the certificate of incorporation or by-laws of
the Company, (ii) any indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note
agreement or other agreement or instrument to which the
Company is a party or by which it may be bound or to which
any of its assets, property or business (including shares
of the Common Stock) is or may be subject (other than the
MHS Registration Rights), or (iii) any statute, judgment,
decree, order, rule or regulation applicable to the Company
of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body,
domestic or foreign, having jurisdiction over the Company
or any of its activities or properties. The descriptions
of the Securities, the Indenture, the Share Repurchase
Agreement and Registration Rights Agreement set forth in
the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum) are
accurate and fairly describe such agreements in all
material respects. The form of the Indenture meets the
requirements for qualification under the Trust Indenture
Act of 1939 (the "TIA").
(k) All material leases, contracts and agreements to
which the Company is a party or by which it is or may be
bound or to which any of its assets, properties or
businesses (including shares of the Common Stock) is or may
be subject have been duly and validly authorized, executed
and delivered by the Company and constitute the legal,
valid and binding agreements of the Company enforceable
against it in accordance with their respective terms with
<PAGE>
only such exceptions as would not have a Material Adverse
Effect (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other
similar laws relating to enforcement of creditors' rights
generally, and general equitable principles relating to the
availability of remedies, and except as rights to indemnity
or contribution may be limited by federal or state
securities laws and the public policy underlying such laws)
and, to the knowledge of the Company, are valid and
enforceable against the other party or parties thereto.
The descriptions of such leases, contracts and agreements
set forth in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary
Memorandum) are accurate and fairly describe such
agreements in all material respects.
(l) Subsequent to the most recent respective dates as
of which information is given in the Final Memorandum (or,
if the Final Memorandum is not in existence, the
Preliminary Memorandum) and except as expressly
contemplated therein, the Company has not incurred, other
than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent, purchased
any of its outstanding capital stock, paid or declared any
dividends or other distributions on its capital stock or
entered into any material transactions not in the ordinary
course of business, and there has been no material change
in capital stock or debt or any material adverse change in
the business, properties, assets, net worth, condition
(financial or other), or results of operations or prospects
of the Company. The Company (and the manner in which it
conducts its business) is not in breach or violation of, or
in default under, any term or provision of (i) its
certificate of incorporation or bylaws, (ii) any indenture,
mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note agreement or other material
agreement or instrument to which it is a party or by which
it is or may be bound or to which any of its property is or
may be subject, or any indebtedness, the effect of which
breach or default singly or in the aggregate may have a
Material Adverse Effect (provided that on and after the
Closing Date the Company may not request a borrowing of a
revolving credit advance under the Credit Agreement dated
December 7, 1993, between BNY Financial Corporation and the
Company (as amended through October 1996, the "Credit
Agreement") unless a waiver of an event of default under
the Credit Agreement is first obtained) or (iii) any
statute, judgment, decree, order, rule or regulation
applicable to the Company or of any arbitrator, court,
regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its activities or
properties and the effect of which breach or default singly
or in the aggregate may have a Material Adverse Effect.
<PAGE>
(m) No labor disturbance by the employees of the
Company exists or is imminent which may have a Material
Adverse Effect.
(n) Since its inception, the Company has not incurred
any material liability arising under or as a result of the
application of the provisions of the Act.
(o) No consent, approval, authorization or order of
or filing with any court, regulatory body, administrative
agency or any other governmental agency or body, domestic
or foreign, is required for the performance of this
Agreement or the consummation of the transactions
contemplated hereby, except such as may be required under
state securities or Blue Sky laws in connection with the
Initial Purchasers' purchase and distribution of the
Securities.
(p) Other than the MHS Registration Rights, there are
no contracts, agreements or understandings between the
Company and any person granting such person the right to
require the Company to file a registration statement under
the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to
include such securities under the Registration Statement
that have not been waived with respect to the Registration
Statement.
(q) Neither the Company nor any of its officers,
directors or affiliates (within the meaning of the Rules
and Regulations) has taken, directly or indirectly, any
action designed to stabilize or manipulate the price of any
security of the Company, or which has constituted or which
might in the future reasonably be expected to cause or
result in stabilization or manipulation of the price of any
security of the Company, to facilitate the sale or resale
of the Securities or otherwise.
(r) The Company has good and marketable title to, or
valid and enforceable leasehold interests in, all
properties and assets owned or leased by it, free and clear
of all liens, encumbrances, security interests, claims,
restrictions, equities, claims and defects, except (A) such
as are described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary
Memorandum), or such as do not materially adversely affect
the value of any of such properties or assets taken as a
whole and do not materially interfere with the use made and
proposed to be made of any of such properties or assets,
and (B) liens for taxes not yet due and payable as to which
appropriate reserves have been established and reflected in
the financial statements included in the Final Memorandum
(or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum). The Company owns or leases
<PAGE>
all such properties as are necessary to its operations as
now conducted, and as proposed to be conducted as set forth
in the Final Memorandum (or, if the Final Memorandum is not
in existence, the most recent Preliminary Memorandum); and
the properties and business of the Company conform in all
material respects to the descriptions thereof contained in
the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum). All
the material leases and subleases of the Company, and under
which the Company holds properties or assets as lessee or
sublessee, constitute valid leasehold interests of the
Company free and clear of any lien, encumbrance, security
interest, restriction, equity, claim or defect, are in full
force and effect, and the Company is in not default in
respect of any of the material terms or provisions of any
such material leases or subleases, and the Company does not
have notice of any claim which has been asserted by anyone
adverse to the Company's rights as lessee or sublessee
under either the material lease or sublease, or affecting
or questioning the Company's right to the continued
possession of the leased or subleased premises under any
such material lease or sublease, which may have a Material
Adverse Effect.
(s) The Company has not violated any applicable
environmental, safety, health or similar law applicable to
the business of the Company, nor any federal or state law
relating to discrimination in the hiring, promotion, or pay
of employees, nor any applicable federal or state wages and
hours law, nor any provisions of ERISA or the rules and
regulations promulgated thereunder, the consequences of
which violation may have a Material Adverse Effect.
(t) The Company holds all franchises, licenses,
permits, approvals, certificates and other authorizations
from federal, state and other governmental or regulatory
authorities necessary to the ownership, leasing and
operation of its properties or required for the present
conduct of its business, and such franchises, licenses,
permits, approvals, certificates and other governmental
authorizations are in full force and effect and the Company
is in compliance therewith in all material respects except
where the failure so to obtain, maintain or comply with
would not have a Material Adverse Effect.
(u) No securities of the Company are of the same
class (within the meaning of Rule 144A) as the Securities
and listed on a national securities exchange registered
under Section 6 of the Exchange Act, or quoted in a U.S.
automated inter-dealer quotation system. The Company has
not issued any securities of the same class as the
Securities within the six-month period immediately prior to
the date hereof.
<PAGE>
(v) Neither the consummation of the transactions
contemplated by this Agreement nor the sale, issuance,
execution or delivery of the Securities will violate
Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
(w) None of the Company or any of its affiliates
(within the meaning of the Rules and Regulations) has
directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect
of, any "security" (as defined in the Act) which is or
could be integrated with the sale of the Securities in a
manner that would require the registration of the
Securities under the Act or (ii) engaged in any form of
general solicitation or general advertising (as those terms
are used in Regulation D under the Act) in connection with
the offering of the Securities or in any manner involving a
public offering within the meaning of Section 4(2) of the
Act. Assuming the accuracy of the representations and
warranties of the Initial Purchasers in Section 8 hereof,
it is not necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchasers in the
manner contemplated by this Agreement to register any of
the Securities under the Act or to qualify the Indenture
under the TIA.
(x) The Final Memorandum (or if the Final Memorandum
is not in existence, the most recent Preliminary
Memorandum) contains all the information specified in Rule
144A.
(y) The Company is a reporting issuer within the
meaning of Regulation S.
3. Purchase, Sale and Delivery of the Securities. On the
basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to each
Initial Purchaser and each Initial Purchaser, severally and not
jointly, agrees to purchase from the Company, at a purchase
price of 97% of the principal amount thereof, the aggregate
principal amount of Firm Securities set forth opposite the name
of such Initial Purchaser in Schedule I hereto.
Delivery of, and payment of the purchase price for, the
Firm Securities shall be made against payment of the purchase
price, in accordance with the next paragraph, at the offices of
Furman Selz LLC at 230 Park Avenue, New York, New York 10169, or
such other location as shall be agreed upon by the Company and
the Initial Purchasers. Such delivery and payment shall be made
at 10:00 A.M., New York City time, on August 26, 1997 or at such
other time and date as shall be agreed upon by the Initial
Purchasers and the Company. The time and date of such delivery
and payment are herein called the "Closing Date."
<PAGE>
One or more of the Securities in definitive form,
registered in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"), having an aggregate principal
amount corresponding to (i) the aggregate amount of the
Securities sold pursuant to resales to QIBs (collectively, the
"Rule 144A Global Security") and (ii) the aggregate principal
amount of the Securities sold pursuant to Regulation S (the
"Regulation S Global Security"), and Securities in definitive
form in the aggregate principal amount of the Securities sold
pursuant to resales to Accredited Investors (the "Accredited
Investor Securities"), registered in the respective names of
such Accredited Investors, shall be delivered by the Company to
the Initial Purchasers (or as the Initial Purchasers direct),
against payment by the Initial Purchasers of the purchase price
therefor, by wire transfer of immediately available funds to the
Company's account, provided that the Company shall give at least
two business days' prior written notice to the Initial
Purchasers of the information required to effect such wire
transfers. The Rule 144A Global Security, the Regulation S
Global Security and Accredited Investor Securities shall be made
available to the Initial Purchasers for inspection not later
than 9:30 A.M. on the business day immediately preceding the
Closing Date.
4. The Offering. The Initial Purchasers propose to
consummate the Offering at the price, interest rate and upon the
terms set forth in the Final Memorandum, as soon as practicable
after this Agreement is entered into and as in the judgment of
the Initial Purchasers is advisable.
5. Covenants of the Company.
The Company covenants and agrees with each of the
Initial Purchasers that:
(a) The Company consents to the use of the Final
Memorandum and the Preliminary Memorandum by the Initial
Purchasers in connection with the Offering or resale of the
Securities. The Company will not amend or supplement the
Preliminary Memorandum or the Final Memorandum without
advising the Initial Purchasers, furnishing them a copy of
a reasonable period of time prior to such amendment or
supplement and obtaining the consent of the Initial
Purchasers. The Company will promptly, upon the
reasonable request of the Initial Purchasers or counsel for
the Initial Purchasers, make any amendments or supplements
to the Preliminary Memorandum or the Final Memorandum that
may be necessary or advisable in connection with the resale
of the Securities by the Initial Purchasers. If, at any
time prior to the completion of the distribution by the
Initial Purchasers of the Securities, any event occurs or
information becomes known as a result of which the Final
Memorandum as then amended or supplemented would include
any untrue statement of a material fact, or omit to state a
<PAGE>
material fact necessary to make the statements therein, in
the light of the circumstances under which they were made,
not misleading, or if for any other reason it is necessary
at any time to amend or supplement the Final Memorandum to
comply with applicable law, the Company will promptly
notify the Initial Purchasers and will prepare, at the
expense of the Company, an amendment or supplement to the
Final Memorandum reasonably satisfactory to counsel for the
Initial Purchasers, that corrects such statement or
omission or effects such compliance.
(b) The Company will (i) use its best efforts to
arrange for the qualification of the Securities for offer
and sale under the state securities or blue sky laws of
such jurisdictions as the Initial Purchasers may designate,
(ii) continue such qualifications in effect for as long as
may be necessary to complete the distribution of the
Securities, and (iii) make such applications, file such
documents and furnish such information as may be required
for the purposes set forth in clauses (i) and (ii);
provided, however, that the Company shall not be required
to qualify as a foreign corporation or file a general or
unlimited consent to service of process in any such
jurisdiction. The Company, at or prior to the purchase of
the Securities by the Initial Purchasers on the Closing
Date, will obtain the approval of the NASD to have the
Conversion Shares quoted on the Nasdaq National Stock
Market ("Nasdaq") and designated for trading on the PORTAL
Market; the Company will also arrange to have the
Securities and Conversion Shares eligible for clearance and
settlement through The Depository Trust Company ("DTC").
(c) The Company will maintain a Transfer Agent
and, if necessary under the jurisdiction of incorporation
of the Company, a Registrar (which may be the same entity
as the Transfer Agent) for its Common Stock.
(d) The Company will furnish, without charge, to
the Initial Purchasers or on the Initial Purchasers' order,
at such place as the Initial Purchasers may designate,
copies of the Preliminary Memorandum and the Final
Memorandum, and all amendments and supplements thereto, in
each case as soon as available and in such quantities as
the Initial Purchasers may reasonably request.
(e) None of the Company nor any of its officers
or directors, nor affiliates of any of them (within the
meaning of the Rules and Regulations) will (i) take,
directly or indirectly, any action designed to, or which
might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of
any securities of the Company, (ii) sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of
any "security" (as defined in the Act) which could be
<PAGE>
integrated with the sale of the Securities in a manner
which would require the registration under the Act of the
Securities or (iii) engage in any form of general
solicitation or general advertising (as those terms are
used in Regulation D under the Act) in connection with the
Offering or in any manner involving a public offering
within the meaning of Section 4(2).
(f) The Company will apply the net proceeds of
the offering received by it in the manner set forth under
the caption "Use of Proceeds" in the Final Memorandum.
(g) The Company will not, directly or
indirectly, without the prior written consent of the
Initial Purchasers, issue, offer, sell, grant any option to
purchase or otherwise dispose (or announce any issuance,
offer, sale, grant of any option to purchase or other
disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable
for, shares of Common Stock for a period of 120 days after
the date hereof, except pursuant to this Agreement except
as contemplated by the Final Memorandum.
(h) For so long as any of the Securities remain
outstanding, the Company will (i) furnish to the Initial
Purchasers copies of all reports and other communications
(financial or otherwise) furnished by the Company to the
Trustee or to the holders of the Securities and, as soon as
available, copies of any reports or financial statements
furnished to or filed by the Company with the Commission or
any national securities exchange on which any class of
securities of the Company may be listed and (ii) make
available at its expense, upon request, to any holder of
such Securities and any prospective purchasers thereof the
information specified in Rule 144A(d)(4) under the Act,
unless the Company is then subject to Section 13 or 15(d)
of the Exchange Act.
(i) Prior to the Closing Date, the Company will
furnish to the Initial Purchasers, as soon as they have
been prepared, a copy of any unaudited interim financial
statements of the Company for any period subsequent to the
period covered by the most recent financial statements
appearing in the Final Memorandum.
6. Expenses.
(a) Regardless of whether the transactions
contemplated in this Agreement are consummated, and regardless
of whether for any reason this Agreement is terminated, the
Company will pay, and hereby agrees to indemnify each Initial
Purchaser against, all fees and expenses incident to the
performance of the obligations of the Company under this
Agreement, including, but not limited to, (i) fees and expenses
<PAGE>
of accountants and counsel for the Company, (ii) all costs and
expenses incurred in connection with the preparation,
duplication, printing, filing, delivery and shipping of copies
of the Preliminary Memorandum and the Final Memorandum
(including postage costs related to the delivery by the Initial
Purchasers of any Preliminary Memorandum or Final Memorandum),
this Agreement, the Indenture, the Securities and all other
documents in connection with the transactions contemplated
herein, including the cost of all copies thereof, (iii) fees and
expenses relating to qualification of the Securities and the
Conversion Shares under state securities or blue sky laws,
including the cost of preparing and mailing the preliminary and
final blue sky memoranda and filing fees and disbursements and
fees of counsel and other related expenses, if any, in
connection therewith, (iv) filing fees of the NASD relating to
the Securities, (v) any fees and expenses in connection with the
designation of the Securities and the Conversion Shares on the
PORTAL Market, the eligibility of the Securities for clearance
through DTC and the quotation of the Conversion Shares on
Nasdaq, (vi) costs and expenses incident to the preparation,
issuance and delivery to the Initial Purchasers of any
certificates evidencing the Securities, including transfer
agent's and registrar's fees and any applicable transfer taxes
incurred in connection therewith, (vii) costs and expenses
incident to any meetings with prospective purchasers of the
Securities (other than as shall have been specifically approved
by the Initial Purchasers to be paid for by the Initial
Purchasers), (viii) costs and expenses of advertising relating
to the Offering (other than as shall have been specifically
approved by the Initial Purchasers to be paid for by the Initial
Purchasers) and (ix) fees and expenses of the Trustee including
fees and expenses of counsel.
(b) If the purchase of the Securities as herein
contemplated is not consummated for any reason other than (i)
the Initial Purchasers' default under this Agreement, or (ii)
the termination of this Agreement pursuant to any of clauses
(ii) to (v) (A) inclusive of Section 12(b), the Company shall
reimburse the Initial Purchasers for their out-of-pocket
expenses (including reasonable counsel fees and disbursements)
in connection with any investigation made by them, and any
preparation made by them in respect of marketing of the
Securities or in contemplation of the performance by them of
their obligations hereunder.
7. Conditions of the Initial Purchasers' Obligations.
The obligation of each Initial Purchaser to purchase and pay for
the Securities set forth opposite the name of such Initial
Purchaser in Schedule I is subject to the continuing accuracy of
the representations and warranties of the Company herein as of
the date hereof and as of the Closing Date as if they had been
made on and as of the Closing Date; the accuracy on and as of
the Closing Date of the statements of officers of the Company
made pursuant to the provisions hereof; the performance by the
<PAGE>
Company on and as of the Closing Date of its covenants and
agreements hereunder; and the following additional conditions:
(a) No stop order or similar order preventing or
suspending the use of the Preliminary Memorandum or the Final
Memorandum shall have been issued and no proceedings for that
purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Initial Purchasers, shall be
contemplated by any securities or other governmental authority
in any jurisdiction (including, without limitation, the
Commission); no order asserting that any of the transactions
contemplated by this Agreement, Preliminary Memorandum or the
Final Memorandum are subject to the registration requirements of
the Act shall have been issued; and no securities or other
governmental authority (including, without limitation, the
Commission) shall have requested any additional information to
be included in the Preliminary Memorandum or Final Memorandum or
otherwise
(b) The Initial Purchasers shall not have advised the
Company that the Final Memorandum contains an untrue statement
of fact which, in the Initial Purchasers' opinion, is material,
or omits to state a fact which, in the Initial Purchasers'
opinion, is material and is required to be stated therein or is
necessary to make the statements therein in light of the
circumstances under which they were made not misleading.
(c) On or prior to the Closing Date, the Initial
Purchasers shall have received from counsel to the Initial
Purchasers, such opinion or opinions with respect to the
issuance and sale of the Firm Securities, the Preliminary
Memorandum and the Final Memorandum and such other related
matters as the Initial Purchasers reasonably may request and
such counsel shall have received such documents and other
information as they request to enable them to pass upon such
matters.
(d) On the Closing Date the Initial Purchasers shall
have received the opinion, dated the Closing Date, of Hunton &
Williams, counsel to the Company ("Company Counsel"), to the
effect set forth below:
(i) The Company is a duly incorporated and
validly existing corporation in good standing under the
laws of its jurisdiction of incorporation with full power
and authority (corporate and other) to own or lease its
properties and to conduct its business as described in the
Final Memorandum;
(ii) The Company has the duly authorized and
validly outstanding capitalization set forth under the
caption "Capitalization" in the Final Memorandum and will
have the adjusted capitalization set forth therein on the
Closing Date and on the Option Closing Date (as the case
<PAGE>
may be), based on the assumptions set forth therein, except
as otherwise contemplated in the Final Memorandum. The
securities of the Company conform to the descriptions
thereof contained in the Final Memorandum. The outstanding
shares of Common Stock have been duly authorized and
validly issued by the Company and are fully paid and
nonassessable. Except as created hereby or referred to in
the Final Memorandum, there are no outstanding options,
warrants, rights or other arrangements requiring the
Company at any time to issue any capital stock. No holders
of outstanding shares of capital stock of the Company are
entitled as such to any preemptive or other rights to
subscribe for any of the Securities or Conversion Shares
and neither the filing of the Registration Statement nor
the Offering gives rise to any rights, other than those
which have been waived or satisfied and the MHS
Registration Rights, for or relating to, the registration
of any securities of the Company. The Company has full
legal right, power and authority to issue the Securities
and perform its obligations thereunder. The Securities
have been duly authorized; on the Closing Date or the
Option Closing Date (as the case may be), after payment
therefor in accordance with the terms of this Agreement and
when the Securities have been executed and delivered by the
Company and authenticated by the Trustee in accordance with
the provisions of the Indenture, (a) the Securities will
have been duly and validly executed, authenticated, issued
and delivered, will not have been issued in violation of or
subject to any preemptive or other similar right and will
(x) constitute valid and legally binding obligations of the
Company enforceable against the Company in accordance with
their terms and entitled to the benefits provided in the
Indenture and the Registration Rights Agreement, subject,
as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general
principles of equity, and (y) be convertible into the
Conversion Shares in accordance with the terms of the
Indenture, and (b) good and marketable title to the
Securities will pass to the Initial Purchasers on the
Closing Date or the Option Closing Date (as the case may
be) free and clear of any lien, encumbrance, security
interest, claim or other restriction whatsoever, provided
that the Initial Purchasers purchase the Securities in good
faith and without notice of any adverse claims. The
Conversion Shares have been duly and validly authorized and
reserved for issuance upon conversion of the Securities
and, when issued and delivered upon such conversion, will
be duly and validly issued and outstanding, fully paid and
nonassessable and will not have been issued in violation of
or subject to any preemptive or other similar rights.
(iii) The Company has full legal right, power
and authority to enter into this Agreement, the Indenture,
<PAGE>
the Share Repurchase Agreement (the obligations of the Company under which being
subject to the approval of its Board of Directors), the Registration Rights
Agreement and each Security and to consummate the transactions provided for
herein and therein and perform its obligations hereunder and thereunder; each of
this Agreement, the Indenture, the Registration Rights Agreement and each
Security has been duly authorized, executed and delivered by the Company; and
each of this Agreement, the Indenture, the Share Repurchase Agreement, the
Registration Rights Agreement and each Security assuming due authorization,
execution and delivery by each other party or parties hereto or thereto, and in
the case of the Securities, authentication by the Trustee in accordance with the
Indenture, is or will be upon issuance a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws now
or hereafter in effect relating to or affecting creditors' rights generally or
by general principles of equity relating to the availability of remedies and
except as rights to indemnity and contribution may be limited by federal or
state securities laws or the public policy underlying such laws, and the
Securities are entitled to the benefits of the Indenture. None of the Company's
execution or delivery of this Agreement, the Indenture, the Registration Rights
Agreement and each Security, its performance hereof or thereof, its consummation
of the transactions contemplated herein or therein or its application of the net
proceeds of the Offering in the manner set forth under the caption "Use of
Proceeds", conflicts or will conflict with or results or will result in any
breach or violation of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon, any property or assets of the Company pursuant to the terms of
(A) the certificate of incorporation or by-laws of the Company; (B) the terms of
any indenture, mortgage, deed of trust, voting trust agreement, stockholder's
agreement, note agreement or other agreement or instrument known to such counsel
after reasonable investigation to which the Company is a party or by which it is
or may be bound or to which any of its assets, properties or business may be
subject; or (C) any statute, rule or regulation of any regulatory body or
administrative agency or other governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its activities or properties; or
any judgment, decree or order, known to such counsel after reasonable
investigation, of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic or foreign,
having such jurisdiction; and no consent, approval, authorization or order of
any court, regulatory body or administrative
<PAGE>
agency or other governmental agency or body, domestic or foreign, has been or is
required for the Company's performance of this Agreement, the Indenture, the
Registration Rights Agreement or the Securities or the consummation of the
transactions contemplated hereby or thereby, except such as have been obtained
under state securities or blue sky laws in connection with the purchase and
subsequent resale or placement distribution by the Initial Purchasers of the
Securities;
(iv) The Indenture is in a form to be qualified under the TIA and
the Securities are in a form contemplated by the Indenture;
(v) The Securities delivered on such Closing Date are convertible
into the shares of Common Stock of the Company in accordance with the terms of
the Indenture; the Conversion Shares have been duly authorized and reserved for
issuance upon such conversion and, when issued upon such conversion, will be
validly issued, fully paid and nonassessable;
(vi) The descriptions of the Indenture, the Share Repurchase
Agreement and the Registration Rights Agreement set forth in the Final
Memorandum are accurate and fairly describe such agreements in all material
respects;
(vii) The descriptions of the Securities and the Conversion
Shares in the Final Memorandum, when such securities are issued and, with
respect to the Securities, authenticated by the Trustee in accordance with the
Indenture, are accurate and fairly describe such securities in all material
respects;
(viii) To the best of such counsel's knowledge, the conduct of
the business of the Company is not in violation of any federal, state or local
statute, administrative regulation or other law, which violation is likely to
have a Material Adverse Effect; and the Company has obtained all licenses,
permits, franchises, certificates and other authorizations from state, federal
and other regulatory authorities as are necessary or required for the ownership,
leasing and operation of its properties and the conduct of its business as
presently conducted and as contemplated in the Final Memorandum;
(ix) No registration under the Act of the Securities is required
in connection with the sale of the Securities to the Initial Purchasers as
contemplated by this Agreement and the Final Memorandum or in connection with
the initial resale of the Securities by the Initial Purchasers in accordance
with Section 8 of this Agreement, and prior to the effectiveness of the
Registration Statement, the indenture is not required to be qualified
<PAGE>
under the TIA, in each case assuming (i) (A) that the purchasers who buy such
Securities in the initial resale thereof are QIBs or Accredited Investors or (B)
that the offer or sale of the Securities is made in an offshore transaction as
defined in Regulation S, (ii) the accuracy of the Initial Purchasers'
representations in Section 8 and those of the Company contained in this
Agreement regarding the absence of a general solicitation in connection with the
sale of such Securities to the Initial Purchasers and the initial resale thereof
and (iii) the due performance by the Initial Purchasers of the agreements set
forth in Section 8 hereof;
(x) No securities of the Company are of the same class (within
the meaning of Rule 144A) as the Securities and listed on a national securities
exchange registered under Section 6 of the Exchange Act, or quoted in a U.S.
automated inter-dealer quotation system;
(xi) Neither the consummation of the transactions contemplated by
this Agreement nor the sale, issuance, execution or delivery of the Securities
will violate Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System; and
(xii) No stop order or similar order preventing or suspending the
use of the Final Memorandum has been issued; no proceedings for that purpose are
pending, or, to the knowledge of such counsel, contemplated by any securities or
other governmental authority in any jurisdiction (including, without limitation,
the Commission); no order asserting that any of the transactions contemplated by
the Initial Purchase Agreement or the Final Memorandum are subject to the
registration requirements of the Act has been issued; and no securities or other
governmental authority (including, without limitation, the Commission) has
requested any additional information to be included in the Final Memorandum or
otherwise.
In addition, such counsel shall state that in the course of the
preparation of the Preliminary Memorandum and Final Memorandum, such counsel has
participated in conferences with officers and directors of the Company and with
the Company's independent public accountants, at which conferences such counsel
made inquiries of such officers, directors and accountants and discussed the
contents of the Preliminary Memorandum and Final Memorandum and (without taking
any further action to verify independently the statements made in the
Preliminary Memorandum and Final Memorandum and, except as stated in the
foregoing opinion, without assuming responsibility for the accuracy,
completeness or fairness of such statements) nothing has come to such counsel's
attention that causes such counsel
<PAGE>
to believe that the Final Memorandum as of the date thereof or as of the
Closing Date contained or contains any untrue statement of a material fact
or omitted or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading (it being
understood that such counsel need not express any opinion with respect to
the financial statements, schedules and other financial data included in
the Preliminary Memorandum and Final Memorandum).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws as to specified regulatory matters (to the extent
satisfactory in form and scope to counsel for the Initial Purchasers) such
counsel may rely upon or substitute the opinion of special regulatory counsel
reasonably satisfactory to the Initial Purchasers. The foregoing opinion shall
also state that the Initial Purchasers are justified in relying upon such
opinion, and copies of such opinions shall be delivered to the Initial
Purchasers and counsel for the Initial Purchasers.
(e) On or prior to the Closing Date, counsel to the Initial Purchasers
shall have been furnished such documents, certificates and opinions as they may
reasonably require in order to evidence the accuracy, completeness or
satisfaction of any of the representations or warranties of the Company, or
conditions herein contained.
(f) At the time that this Agreement is executed by the Company the
Initial Purchasers shall have received from KPMG Peat Marwick LLP a letter as of
the date this Agreement is executed by the Company in form and substance
satisfactory to you (the "Original Letter"), and on the Closing Date the Initial
Purchasers shall have received from such firm a letter dated the Closing Date
stating that, as of a specified date not earlier than five (5) days prior to the
Closing Date, nothing has come to the attention of such firm to suggest that the
statements made in the Original Letter are not true and correct.
(g) On the Closing Date, the Initial Purchasers shall have received a
certificate, dated the Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the effect that each
of such persons has carefully examined the Preliminary Memorandum and the Final
Memorandum and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date,
and the Company has complied with all agreements and covenants and
satisfied all conditions contained in this Agreement on its part to be
performed or satisfied at or prior to the Closing Date;
<PAGE>
(ii) No stop order or similar order preventing or suspending the
use of the Final Memorandum has been issued; no proceedings for that
purpose are pending, or, to the knowledge of the Company, contemplated by
any securities or other governmental authority in any jurisdiction
(including, without limitation, the Commission); no order asserting that
any of the transactions contemplated by the Initial Purchase Agreement or
the Final Memorandum are subject to the registration requirements of the
Act has been issued; and no securities or other governmental authority
(including, without limitation, the Commission) has requested any
additional information to be included in the Final Memorandum or otherwise;
(iii) The Preliminary Memorandum as of the date thereof and the
Final Memorandum did not and do not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and
(iv) Subsequent to the respective dates as of which information
is given in the Final Memorandum up to and including the Closing Date,
other than as contemplated by the Final Memorandum, the Company has not
incurred, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; the Company has not
purchased any of its outstanding capital stock or paid or declared any
dividends or other distributions on its capital stock; the Company has not
entered into any transactions not in the ordinary course of business; and
there has not been any change in the capital stock or consolidated long-
term debt or any increase in the consolidated short-term borrowings (other
than any increase in short-term borrowings in the ordinary course of
business) of the Company or any material adverse change to the business
properties, assets, net worth, condition (financial or other), results of
operations or prospects of the Company; the Company has not sustained any
material loss or damage to its property or assets, whether or not insured;
there is no litigation which is pending or threatened against the Company.
(h) Subsequent to the respective dates as of which information is
given in the Final Memorandum up to and including the Closing Date there has not
been (i) any change or decrease specified in the letter or letters referred to
in paragraph (e) of this Section 7 or (ii) any change, or any development
involving a prospective change, in the business or properties of the Company
which change or decrease in the case of clause (i) or change or development in
the case of clause (ii) makes it impractical or inadvisable in the Initial
Purchasers' judgment to proceed with the Offering or the delivery of the
Securities
<PAGE>
as contemplated by the Final Memorandum.
(i) No order suspending the sale of the Securities in any jurisdiction
designated by you pursuant to Section 5(a)(iii)(A) hereof has been issued on or
prior to the Closing Date and no proceedings for that purpose have been
instituted or, to your knowledge or that of the Company, have been or are
contemplated.
(j) The Initial Purchasers shall have received from WorldCorp., Inc.
and each person who is an executive officer or director of the Company, with the
exception of Dato Wan Malek Ibrahim and Lim Kheng Yew, an agreement to the
effect that, except as contemplated by the Final Memorandum, such person will
not, directly or indirectly, without the prior written consent of the Initial
Purchasers, offer, sell, grant any option to purchase or otherwise dispose (or
announce any offer, sale, grant of an option to purchase or other disposition)
of any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of 120 days
after the date of this Agreement.
(k) The Company shall have furnished the Initial Purchasers with such
further opinions, letters, certificates or documents as you or counsel for the
Initial Purchasers may reasonably request. All opinions, certificates, letters
and documents to be furnished by the Company will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchasers and to counsel for the Initial Purchasers. The Company shall
furnish the Initial Purchasers with conformed copies of such opinions,
certificates, letters and documents in such quantities as you reasonably
request. The certificates delivered under this Section 7 shall constitute
representations, warranties and agreements of the Company, as to all matters set
forth therein as fully and effectively as if such matters had been set forth in
Section 2 of this Agreement.
8. Offering of Securities; Restrictions on Transfer. Each of the Initial
Purchasers represents and warrants (as to itself only) that it is a QIB. Each of
the Initial Purchasers agrees with the Company (as to itself only) that (i) it
has not and will not solicit offers for, or offer or sell, the Securities by any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Act) or in any manner involving a public offering within
the meaning of Section 4(2); and (ii) it has and will solicit offers for the
Securities only from, and will offer the Securities only to (A) in the case of
offers inside the United States, (x) persons whom the Initial Purchasers
reasonably believe to be QIBs or, if any such person is buying for one or more
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to the Initial Purchasers that each such
account is a QIB, to whom
<PAGE>
notice has been given that such sale or delivery is being made in reliance on
Rule 144A, and, in each case, in transactions under Rule 144A or (y) a limited
number of other institutional investors reasonably believed by the Initial
Purchasers to be Accredited Investors that, prior to their purchase of the
Securities, deliver to the Initial Purchasers a letter containing the
representations and agreements set forth in Annex A to the Final Memorandum and
(B) in the case of offers outside the United States, to persons other than U.S.
persons ("foreign purchasers," which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners other than an state or trust); provided, however,
that, in the case of this clause (B), in purchasing such Securities such persons
are deemed to have represented and agreed as provided under the caption "Notice
to Investors" contained in the Final Memorandum.
9. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Initial
Purchaser and each person, if any, who controls such Initial Purchaser within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any and all losses, claims, damages or liabilities, joint or several (and
actions in respect thereof), to which such Initial Purchaser or such controlling
person may become subject, under the Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Preliminary Memorandum or the Final Memorandum, or any amendment or supplement
thereto, or any blue sky application or other document executed by the Company
specifically for the purpose of qualifying, or based upon written information
furnished by the Company filed in any state or other jurisdiction in order to
qualify, any or all of the Securities under the securities or blue sky laws
thereof (any such application, document or information being hereinafter called
a "Blue Sky Application"), or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements not misleading and will reimburse, as
incurred, such Initial Purchaser or such controlling persons for any legal or
other expenses incurred by such Initial Purchaser or such controlling persons in
connection with investigating, defending or appearing as a third party witness
in connection with any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in any of such documents in reliance upon and in conformity with
information furnished in writing to the Company by such Initial Purchaser
expressly for use therein, and provided, further, that
<PAGE>
such indemnity with respect to any Preliminary Memorandum shall not inure to the
benefit of any Initial Purchaser (or to the benefit of any person controlling
such Initial Purchaser) from whom the person asserting any such loss, claim,
damage, liability or action purchased Securities which are the subject thereof
to the extent that any such loss, claim, damage, liability or action (i) results
from the fact that such Initial Purchaser failed to send or give a copy of the
Final Memorandum to such person at or prior to the confirmation of the sale of
such Securities to such person and (ii) arises out of or is based upon an untrue
statement or omission of a material fact contained in such Preliminary
Memorandum that was corrected in the Final Memorandum (as amended and
supplemented), unless such failure resulted from non-compliance by the Company
with Section 5(a)(viii) hereof.
The indemnity agreement in this paragraph (a) shall be in addition to
any liability which the Company may otherwise have.
(b) Each of the Initial Purchasers agrees severally, but not jointly,
to indemnify and hold harmless the Company, each of its directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act against any and all losses, claims,
damages or liabilities (and actions in respect thereof) to which the Company
director, officer, or controlling person may become subject, under the Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Preliminary Memorandum or the Final Memorandum, or in any
Blue Sky Application, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in conformity with
information furnished in writing by that Initial Purchaser to the Company
expressly for use therein; and will reimburse, as incurred, all legal or other
expenses reasonably incurred by the Company director, officer, controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action. The Company acknowledges that the statements with
respect to the Offering set forth in paragraphs 3, 4, 5, 6, 9, 13 and 14 under
the heading "Plan of Distribution" and the stabilization legend in the
Preliminary Memorandum and the Final Memorandum have been furnished by the
Initial Purchasers to the Company expressly for use therein and constitute the
only information furnished in writing by the Initial Purchasers for inclusion in
the Preliminary Memorandum and the Final Memorandum. The indemnity agreement
contained in this subsection (b) shall be in addition to any liability which
<PAGE>
the Initial Purchasers may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against one or more indemnifying parties
under this Section 9, notify such indemnifying party or parties of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) of this Section 9 or to the extent
that the indemnifying party was not adversely affected by such omission. In case
any such action is brought against an indemnified party and it notifies an
indemnifying party or parties of the commencement thereof, the indemnifying
party or parties against which a claim is to be made will be entitled to
participate therein and, to the extent that it or they may wish, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party has
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and otherwise
to participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses (other than the reasonable costs of investigation) subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party has employed such counsel in connection with the
assumption of such different or additional legal defenses in accordance with the
proviso to the immediately preceding sentence, (ii) the indemnifying party has
not employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party.
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) (i) in such
<PAGE>
proportion as is appropriate to reflect the relative benefits received by each
of the contributing party or parties, on the one hand, and the party or parties
to be indemnified, on the other hand, from the Offering or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each of the
contributing party or parties, on the one hand, and the party or parties to be
indemnified, on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. In any case where the Company is the
contributing party and the Initial Purchasers are the indemnified party, the
relative benefits received by the Company and the Initial Purchasers, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the Offering (before deducting expenses) bear to the total discounts
received by the Initial Purchasers hereunder. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Initial
Purchasers, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
paragraph (d), the Initial Purchasers shall not be required to contribute any
amount in excess of the underwriting discount applicable to the Securities
purchased by the Initial Purchasers hereunder. The Initial Purchasers'
obligations to contribute pursuant to this paragraph (d) are several in
proportion to their respective obligations to purchase Securities, and not
joint. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), (i) each person, if any, who controls an Initial Purchaser within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall
have the same rights to contribution as such Initial Purchaser and (ii) each
director of the Company, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
shall have the same rights to contribution as the Company, subject in each case
to this paragraph (d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect to which a claim for contribution may be made against another
party or parties under this paragraph (d),
<PAGE>
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any other obligation (x) it or
they may have hereunder or otherwise than under this paragraph (d) or (y) to the
extent that such party or parties were not adversely affected by such omission.
The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may otherwise have.
10. Right to Increase Offering. At anytime during a period of 30 days from
the date of the Final Memorandum, the Initial Purchasers, by no less than two
business days' prior notice to the Company may designate a closing (which may be
concurrent with, and part of, the closing on the Closing Date with respect to
the Firm Securities or may be a second closing held on a date subsequent to the
Closing Date, in either case such date shall be referred to herein as the
"Option Closing Date") at which the Initial Purchasers may purchase all or less
than all of the Additional Securities in accordance with the provisions of this
Section 9 at the purchase price per share to be paid for the Firm Securities. In
no event shall the Option Closing Date be later than 10 business days after
written notice of election to purchase Additional Securities is given.
The Company agrees to sell to the Initial Purchasers on the Option
Closing Date the principal amount of Additional Securities specified in such
notice and the Initial Purchasers agree severally and not jointly, to purchase
such Additional Securities on the Option Closing Date. Such Additional
Securities shall be allocated between Initial Purchasers in the same proportion
as the principal amount of Firm Securities set forth opposite the name of such
Initial Purchaser in Schedule I bears to the total principal amount of Firm
Securities.
No Additional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Additional Securities or any portion thereof may be
surrendered and terminated at any time upon notice by you to the Company.
Except to the extent modified by this Section 10, all provisions of
this Agreement relating to the transactions contemplated to occur on the Closing
Date for the sale of the Firm Securities shall apply, mutatis mutandis, to the
Option Closing Date for the sale of the Additional Securities.
11. Representations, etc. to Survive Delivery. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers, and the Initial Purchasers,
respectively, set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on
<PAGE>
behalf of the Initial Purchasers, and will survive delivery of and payment for
the Securities. Any successors to the Initial Purchasers shall be entitled to
the indemnity, contribution and reimbursement agreements contained in this
Agreement.
12. Effective Date and Termination.
(a) This Agreement shall become effective upon execution and delivery
by the parties hereto.
(b) This Agreement (except for the provisions of Sections 6 and 9
hereof) may be terminated by the Initial Purchasers by notice to the Company in
the event that the Company has failed to comply in any respect with any of the
provisions of this Agreement required on its part to be performed at or prior to
the Closing Date or the Option Closing Date, or if any of the representations or
warranties of the Company is not accurate in any respect or if the covenants,
agreements or conditions of, or applicable to, the Company herein contained have
not been complied with in any respect or satisfied within the time specified on
the Closing Date or the Option Closing Date, respectively, or if prior to the
Closing Date or the Option Closing Date:
(i) the Company shall have sustained a loss by strike, fire,
flood, accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the Company
and its Subsidiaries taken as a whole regardless of whether or not such
loss was insured;
(ii) trading in the Common Stock shall have been suspended by the
Commission or Nasdaq or trading in securities generally on the New York or
Luxembourg Stock Exchange or on Nasdaq shall have been suspended or a
material limitation on such trading shall have been imposed or minimum or
maximum prices shall have been established on any such exchange or market
system;
(iii) a banking moratorium shall have been declared by New York
or United States authorities;
(iv) there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak
or escalation of any other insurrection or armed conflict involving the
United States; or
(v) there shall have been a material adverse change in (A)
general economic, political or financial conditions or (B) the present or
prospective business or condition (financial or other) of the Company that,
in each case, in the Initial Purchasers' judgment makes it impracticable or
inadvisable to make or consummate the
<PAGE>
public offering, sale or delivery of the Securities on the terms and in the
manner contemplated in the Memorandum.
(c) Termination of this Agreement under this Section 12 or Section 13
after the Firm Securities have been purchased by the Initial Purchasers
hereunder shall be applicable only to the Additional Securities. Termination of
this Agreement shall be without liability of any party to any other party other
than as provided in Sections 6 and 9 hereof.
13. Substitution of Initial Purchasers. If one of the Initial Purchasers
shall fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 7 or 12 hereof) to
purchase and pay for (a) in the case of the Closing Date, the principal amount
of Firm Securities agreed to be purchased by such Initial Purchaser upon tender
to you of such Firm Securities in accordance with the terms hereof or (b) in the
case of the Option Closing Date, the principal amount of Additional Securities
agreed to be purchased by such Initial Purchaser upon tender to you of such
Additional Securities in accordance with the terms hereof, and the principal
amount of such Securities shall not exceed 10% of the Firm Securities or
Additional Securities required to be purchased on the Closing Date or the Option
Closing Date, as the case may be, then, the non-defaulting Initial Purchasers
shall purchase and pay for (in addition to the number of such Securities which
it has severally agreed to purchase hereunder) that proportion of the principal
amount of Securities which the defaulting Initial Purchaser or Initial
Purchasers shall have so failed or refused to purchase on such Closing Date or
Option Closing Date, as the case may be. In such case, you shall have the right
to postpone the Closing Date or the Option Closing Date, as the case may be, to
a date not exceeding seven full business days after the date originally fixed as
such Closing Date or the Option Closing Date, as the case may be, pursuant to
the terms hereof in order that any necessary changes in the Final Memorandum or
any other documents or arrangements may be made.
If one or more of the Initial Purchasers shall fail or refuse (otherwise
than for a reason sufficient to justify the termination of this Agreement under
the provisions of Section 7 or 12 hereof) to purchase and pay for (a) in the
case of the Closing Date, the principal amount of Firm Securities agreed to be
purchased by such Initial Purchaser upon tender to you of such Firm Securities
in accordance with the terms hereof or (b) in the case of the Option Closing
Date, the principal amount of Additional Securities agreed to be purchased by
such Initial Purchaser upon tender to you of such Additional Securities in
accordance with the terms hereof, and the principal amount of such Securities
shall exceed 10% of the Firm Securities or Additional Securities required to be
purchased by all the Initial Purchasers on the Closing Date or the Option
Closing Date, as the case may be, then (unless within 48 hours after
<PAGE>
such default arrangements to your satisfaction shall have been made for the
purchase of the defaulted Securities by an Initial Purchaser or other investor)
and subject to the provisions of Section 12(b) hereof, this Agreement will
terminate without liability on the part of any non-defaulting Initial Purchaser
or on the part of the Company except as otherwise provided in Sections 6 and 9
hereof. As used in this Agreement, the term "Initial Purchaser" includes any
person substituted for a Initial Purchaser under this paragraph. Nothing in this
Section 13, and no action taken hereunder, shall relieve any defaulting Initial
Purchaser from liability in respect of any default of such Initial Purchaser
under this Agreement.
14. Notices. All communications hereunder shall be in writing and if sent
to the Initial Purchasers shall be mailed or delivered or telegraphed and
confirmed by letter or telecopied and confirmed by letter to c/o Furman Selz LLC
at 230 Park Avenue, New York, New York 10169, Attention: Syndicate Department
or, if sent to the Company, shall be mailed or delivered or telegraphed and
confirmed to the Company at 13873 Park Center Road, suite 490, Herndon, Virginia
20171, Attention Mark S. Lynch.
15. Successors. This Agreement shall inure to the benefit of and be
binding upon the Company and each Initial Purchaser and the Company's, and each
Initial Purchaser's respective successors and legal Initial Purchasers, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person, except that the representations, warranties, indemnities and
contribution agreements of the Company contained in this Agreement shall also be
for the benefit of any person or persons, if any, who control any Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, and except that the Initial Purchasers' indemnity and contribution
agreements shall also be for the benefit of the directors of the Company and any
person or persons, if any, who control the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from
the Initial Purchasers will be deemed a successor because of such purchase.
16. Applicable Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the choice of law or conflict of law principles thereof. Each party
hereto consents to the jurisdiction of each court in which any action is
commenced seeking indemnity or contribution pursuant to Section 8 above and
agrees to accept, either directly or through an agent, service of process of
each such court.
<PAGE>
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
If the foregoing correctly sets forth our understanding, please indicate
the Initial Purchasers' acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
WORLD AIRWAYS, INC.
By:
-----------------------------
Name: Mark Lynch
Title: Chief Financial Officer
Accepted as of the date first
above written:
FURMAN SELZ LLC
DILLON, READ & CO. INC.
By: Furman Selz LLC
By:
----------------------------------
Name: William Hallisey
Title: Managing Director
<PAGE>
SCHEDULE I
INITIAL PURCHASERS
Initial Purchase Agreement dated August 21, 1997
<TABLE>
<CAPTION>
Principal Amount of Firm
Name Securities to be Purchased
<S> <C>
Furman Selz LLC $ 30,000,000
Dillon, Read & Co. Inc. $ 20,000,000
Total $ 50,000,000
</TABLE>
<PAGE>
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219-4074
FILE NO.: 50131.10
DIRECT DIAL: (804) 788-8200
November 6, 1997
Board of Directors
World Airways, Inc.
13873 Park Center Road
Suite 490
Herndon, Virginia 22071
World Airways, Inc. --
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to World Airways, Inc., a Delaware
corporation (the "Company"), in connection with the issuance by the Company of
$50,000,000 aggregate principal amount of 8% Convertible Senior Subordinated
Debentures Due 2004 (the "Debentures"), pursuant to the terms of an Indenture
dated as of August 1, 1997 (the "Indenture"), among the Company and First Union
National Bank, as Trustee, and in connection with the filing of the Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933,
as amended, relating to the proposed public offer and sale by certain holders of
the Debentures and an indeterminate number of shares of common stock of the
Company, par value $0.001 per share (the "Conversion Shares") as may be issued
upon conversion of the Debentures.
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company and certificates of their respective
officers and of public officials as we have deemed necessary.
Based upon the foregoing and subject to the further qualifications stated
below, we are of the opinion that:
1. The Company is duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.
2. The Debentures have been issued and sold upon the terms and conditions
set forth in the Registration Statement and have been duly executed,
authenticated and delivered in accordance with the terms of the Indenture, and
have been validly authorized and issued and are binding obligations of the
Company.
<PAGE>
Board of Directors
World Airways, Inc.
November 6, 1997
Page 2
3. The Debentures are convertible into the shares of common stock of the
Company in accordance with the terms of the Indenture; and the Conversion Shares
have been duly authorized and reserved for issuance upon such conversion and,
when issued in accordance with the terms of the Indenture upon such conversion,
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the statement made in reference to
this firm under the caption "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ Hunton & Williams
<PAGE>
Exhibit 12.1
WORLD AIRWAYS, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31, Six Months ended June 30,
--------------------------------------------------------- ---------------------------
1996 1997
As As
1992 1993 1994 1995 1996 Adjusted 1996 1997 Adjusted
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expenses,
including amortization of
debt issuance costs 426 2,103 3,684 3,486 3,529 6,975 1,576 2,046 3,856
Portion of rent expense
representative of interest(1) 12,800 16,868 17,900 22,133 28,000 28,000 12,500 16,831 16,831
------ ------ ------ ------ ------ ------ ------ ------ ------
Total Fixed Charges 13,226 18,971 21,584 25,619 31,529 34,975 14,076 18,877 20,687
------ ------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss):
Earnings (loss) from continuing
operations before income taxes,
minority interest, extraordinary item,
and change in accounting principle 8,654 (8,985) (9,027) 14,748 19,032 15,586 11,087 11,016 9,206
Fixed charges 13,226 18,971 21,584 25,619 31,529 34,975 14,076 18,877 20,687
------ ------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) adjusted
for fixed charges 21,880 9,986 12,557 40,367 50,561 50,561 25,163 29,893 29,893
------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of earnings to fixed charges 1.65x -- -- 1.58x 1.60x 1.45x 1.79x 1.58x 1.45x
Deficiency in earnings
to cover fixed charges -- $8,984 $9,027 -- -- -- -- -- --
</TABLE>
(1) One-third of rent expense is deemed to be representative of interest.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
World Airways, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Washington, DC
November 5, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee
pursuant to Section 305(b)(2) _____
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
230 SOUTH TRYON STREET, 9TH FL.
CHARLOTTE, NC 28288-1179 56-0900030
(Address of principal (Zip Code) (I.R.S. Employer
executive office) Identification No.)
Dante M. Monakil, (804) 788-9659
901 E. Cary Street, Richmond, Virginia 23219
WORLD AIRWAYS, INC.
(Exact name of obligor as specified in its charter)
Delaware 94-1358276
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
13873 Park Center Road, Suite 490
Herndon, VA 20171
(Address of principal executive offices) (Zip Code)
8% CONVERTIBLE SENIOR SUBORDINATED NOTES DUE 2004
(Title of the indenture securities)
1. General information.
<PAGE>
(a) The following are the names and addresses of each examining
or supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust
powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
3. Voting Securities of the Trustee.
Not applicable.
(See answer to Item 13)
4. Trusteeships under other indentures.
Not applicable.
(See answer to Item 13)
5. Interlocking directorates and similar relationships with the
obligor or underwriters.
Not applicable.
(See answer to Item 13)
6. Voting securities of the Trustee owned by the obligor or its
officials.
Not applicable.
(See answer to Item 13)
7. Voting securities of the Trustee owned by underwriters or
their officials.
Not applicable.
(See answer to Item 13)
8. Securities of the obligor owned or held by the Trustee.
Not applicable.
<PAGE>
(See answer to Item 13)
9. Securities of underwriters owned or held by the Trustee.
Not applicable.
(See answer to Item 13)
10. Ownership or holdings by the Trustee of voting securities
of certain affiliates or security holders of the obligor.
Not applicable.
(See answer to Item 13)
11. Ownership of holders by the Trustee of any securities of a
person owning 50 percent or more of the voting securities
of the obligor.
Not applicable.
(See answer to Item 13)
12. Indebtedness of the obligor to the Trustee.
Not applicable.
(See answer to Item 13)
13. Defaults by the obligor.
A. None
B. None
14. Affiliations with the underwriters.
Not applicable.
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under
the laws of the United States.
16. List of Exhibits.
(1) Articles of Incorporation. (Incorporated by reference
from Exhibit 25 to Registration 333-25575, filed
June 5, 1997.)
<PAGE>
(2) Certificate of Authority of the Trustee to conduct
business. (Incorporated by reference from Exhibit 25
to Registration 333-25575, filed June 5, 1997.)
(3) Certificate of Authority of the Trustee to exercise
corporate trust powers. (Incorporated by reference
from Exhibit 25 to Registration 333-25575, filed
June 5, 1997.)
(4) By-Laws. (Incorporated by reference from Exhibit 25 to
Registration 333-25575, filed June 5, 1997.)
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of
the Trust Indenture Act of 1939. Included at Page 5 of
this Form T-1 Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Richmond, and Commonwealth of Virginia on the 3rd day of October, 1997.
FIRST UNION NATIONAL BANK
(Trustee)
BY: /s/ Dante M. Monakil
Dante M. Monakil,
Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in connection
with the proposed issuance by World Airways, Inc., of its 8% Convertible Senior
Subordinated Notes Due 2004, First
<PAGE>
Union National Bank, as the Trustee herein named, hereby consents that reports
of examinations of said Trustee by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon requests therefor.
FIRST UNION NATIONAL BANK
BY: /s/ John M. Turner
John M. Turner,
Vice President and
Managing Director
Dated: October 3, 1997
